Question

Now say you invest the $6,500 and the highest interest rate you can find is 2.5% compounded annually, but you would have to leave the investment in the account for a minimum of 5 years. If you decide to wait 5 years to buy the car, how much more money will you have to save to buy a car at the $8,000 price?

Answer 1

$648.5

Explanation:

Given data

Principal= $6,500

Rate= 2.5%

Time= 5 years

The compound interest formula is given as

A= P(1+r)^t

substitute

A= 6500(1+0.025)^5

A= 6500(1.025)^5

A=6500*1.131

A=$7351.5

After 5 years the money in the account will be $7351.5

Now to buy a car of $8,000

The added amount will be

=$8,000-$7351.5

=$648.5