Question

You plan to buy a car valued at $12,000 in four years. How much should you invest now, 7.3% simple interest, to have enough for the car in four years?

Answer 1

Given the information on the proble, we can use the formula for simple interest to find the principal amount to be invested:

$\begin{gathered} A=P(1+rt) \\ \end{gathered}$

where P represents the principal amount, r the interest rate, t represents the time and A is the total amount.

In this case we know that A = 12000, since that is the price of the car in four years. With r = 7.3% = 0.073 and t = 4, we have:

$\begin{gathered} 12000=P(1+0.073*4)=1.292P \\ \Rightarrow P=\frac{12000}{1.292}=9287.93 \\ P=9287.93 \end{gathered}$

therefore, the amount to be invested is $9287.93