Question

6. You hope to buy a $10,000 car in cash in five years. Your bank is offering aspecial account that pays 6.4% interest compounded continuously. Howmuch money do you need to invest in this account now in order to buy thecar in five years?

Answer 1

Let individual invest P in account.

The formula for the amount is,

$A=P(1+\frac{r}{100})^t$

Determine the value of P for A = 10,000, r = 6.4% anf t = 5.

$\begin{gathered} 10000=P(1+\frac{6.4}{100})^5 \\ 10000=P(1+0.064)^5 \\ P=\frac{10000}{1.3636664} \\ =7333.1718 \\ \approx7333.2 \end{gathered}$

Thus individual invest $7333.2 in account to buy car in five years.