Question

Linda Baer has already saved $6,500 to buy a used vehicle. Ignoring taxes and assuming her money is invested in a money market account earning 3 percent compounded annually, how long will it take to buy a car that costs $9,000?

Answer 1

Answer:

11 years.

Explanation:

Below is the calculation for the time period:

Present value of the money = $6500

Interest rate = 3%

Future value of the money = $9000

Future value = Present Value (1 + r )^n

9000 = 6500 (1 + 3%)^n

9000/6500 = (1 + 3%)^n

1.3846 = (1.03)^n

Now solve for the value of n by taking ln on both sides.

Thus n = 11 years.