You decide to put $100 in a savings account to save for a $3,000 down payment on a new car. If the account has an interest rate of 2% per year and is compounded monthly, how long does it take you to earn $3,000 without depositing any additional funds?
A. 170.202 years
B. 14.3129 years
C. 171.755 years
D. 168.354 years

Question

You decide to put $100 in a savings account to save for a $3,000 down payment on a new car. If the account has an interest rate of 2% per year and is compounded monthly, how long does it take you to earn $3,000 without depositing any additional funds?
A. 170.202 years
B. 14.3129 years
C. 171.755 years
D. 168.354 years

jim_thompson5910 · Answer

Use the formula

FV = PV*(1+r/n)^(n*t)

the variables are

FV = future value
PV = present value
r = interest rate
n = compounding frequency
t = time in years

You will plug in the following

FV = 3000 is the amount you want
PV = 100 is the amount you have
r = 0.02
n = 12
t = unknown. You are solving for this