Question

Ted owns a small florist shop. Since his business is booming, his realizes he will soon need one more delivery van. He decides he will purchase a full size van versus a minivan, which he currently owns. The van he is looking to buy in 3 years will cost him $25,000. How much should he invest each quarter into an account that pays 3% per year compounded quarterly, so that he can have the desired funds in 3 years

Answer 1

Answer:

$1998.79

Explanation:

Quarterly payment = future value /annuity factor

Annuity factor = {[(1+r)^mn] - 1} / r

r = interest rate  = interest rate / number of compounding 3%/4

N = number of years

m = number of compounding

Annuity factor =[ (1.0075)^12 - 1] / 0.0075 = 12.507586

Quarterly payment = $25,000 / 12.507586 = $1998.79