Question

Wile E. Coyote wants to purchase a new tunnel painting technology ACME has just released into the market. Wile E. Coyote knows that he will have a steady income flow of $7,000 per month due to TV advertising. Given that this is a new product and that Mr. Coyote is such a loyal customer, ACME is willing to allow Mr. Coyote pay them in full at the end of 24 months. Mr. Coyote estimates that if he saves in its entirety the $7,000 monthly income, he should be able to afford the tunnel. How much money will Mr. Coyote have at the end of 24 months, assuming he is able to invest (deposit) the money every month into a bank account that pays 6% per year compounded monthly?

Answer 1

Compound interest formula

A = P ( 1+ r/n )^nt

Where

A = final amt

P = principal amt

r = rate of interest

n = number of times interest applied per time period

t= number of time period elapsed

Thus ,

A = 7000(1+6%/2years)2*24

= 7000 (1.03)^ 2*24

= 9520

Now for future value of series formula

PMT × {[(1 + r/n)(nt) - 1] / (r/n)}

Where ,

PMT is monthly payment made

Thus by putting the values we get

7000×{[(1+0.03)(2×24)-1)(0.03)}

7000×2.32993

= 16,309.51

Therefore by adding these two we get the ans

9520+ 16,309.51 = 25829.51 thus this the amount of money mr coyote will have at the end of 24 months