I currently have $7,500 in a money market account paying 5.65 percent

QUESTION

I currently have $7,500 in a money market account paying 5.65 percent annually. I plan to use this and my savings over the next four years to buy a car at the end of this year. The car will cost $12,000 in four years. How much should I invest in the money market account every year for the next four
He currently has $7,500 in a money market account paying 5.65 percent annually. He plans to use this and his savings over the next four years to buy a car at the end of his sophomore year in college. He estimates that the car will cost him $12,000 in four years. How much should he invest in the money market account every year for the next four years if he wants to achieve his target? When you answer can you please answer with a written out form. I would like to understand how the answer was acheived! The question will be solved in 2 parts first we need to compute the future value of 7,500 for four years by using this formula FV = PV (1 i)^n FV = 7,500(1 5.65%)^4

V = 9,344 So his existing saving will fetch $ 9,344 with a deficit of (12,000 9,344) = 2,656 which will need to be achieved by investing more money for four years i.e. FV = R X ((1 i)^n-1)/i 2,656 = R X (1 5.65%)^4/5.65% R = 2,656 / (1 5.65%)^4/5.65% R = 610 so if he invest 610 every year he will receive 2,656 and by existing investment of 7,500 he will receive 9,344 and therefore will be able to purchase new car. SOURCE: http://bit.ly/hQMaJy

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