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Answered - Mr. Franklin Wants To Save For A New - Bartleby

Mr. Franklin wants to save $38,000 for a sports car in 4.5 years. To calculate how much he needs to save each year with a 6% interest rate: 1) Calculate the present value of $38,000 in 4.5 years at 6%, which is $29,235.28. 2) With deposits at the end of each year, Mr. Franklin needs to save $29,235.28/4.5 years = $6,495 each year. 3) With deposits at the beginning of each year, the amount needed each year is still $6,495.

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Piere Carlo Dimalig
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313 views1 page

Answered - Mr. Franklin Wants To Save For A New - Bartleby

Mr. Franklin wants to save $38,000 for a sports car in 4.5 years. To calculate how much he needs to save each year with a 6% interest rate: 1) Calculate the present value of $38,000 in 4.5 years at 6%, which is $29,235.28. 2) With deposits at the end of each year, Mr. Franklin needs to save $29,235.28/4.5 years = $6,495 each year. 3) With deposits at the beginning of each year, the amount needed each year is still $6,495.

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Piere Carlo Dimalig
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Business » Finance » Q&A Library » Mr. Franklin wants to save for a new sports car that he expects will cost $38 000 four and one-half years from now. How much …

Question

A.)Mr. Franklin wants to save for a new sports car that he expects will cost $38 000 four and one-half years from now. How much money will he have to save
each year and deposit in a savings account that pays 6% per year, compounded annually, to buy the car in four and one-half years?

B.)Suppose that Mr. Franklin makes a deposit at the beginning of each year, rather than at the end. How much money must be deposited each year?

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Step 1

Given:

Future value = $38,000

Periods = 4.5 years

Interest rate = 6%

Step 2

Calculate the present value as follows:

Present value = Future   value


(1+Rate)Years
Present value = (1+6%)4.5
$38,000
Present value = $38,000 × 0.76934938
Present value  = $29,235.28
Therefore, the present value is $29,235.28

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B.

If amount is deposited at the beginning of the year. Present value will be equal to $29,235.28

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