Question

You're trying to save to buy a new $180,000 Ferrari. You have $44,000 today that can be invested at your bank. The bank pays 4.0 percent annual interest on its accounts. How long will it be before you have enough to buy the car?

Answer 1

We use the formula:
A = P(1+r/100)^n

 

where
A = future value
P = present value
r = rate of interest
n = time period.

 

                  $180,000 = $44,000*(1.04)^n

 ($180,000/$44,000) = (1.04)^n

               4.09090909 = (1.04)^n

 

Taking log on both sides;

 log 4.09090909 = log [(1.04)^n]

 log 4.09090909 = n*log (1.04)

     0.611819829 = n*0.0170333393

                          n = 0.611819829/0.0170333393

                             = 35.92 years (Approx.) time required 

 

The approximate required is 35.92 years.

The approximate required is 35.92 years.