Olivia and her spouse have saved $4,500 for a 12-day cruise vacation in europe. the couple needs $5,000 for a "nice" cabin or $6,000 for a "luxury" cabin. if cabin prices are expected to remain constant for the next three years and olivia expects to earn 6% per year on her investments, will the couple's savings be enough to afford the "nice" cabin in three years? can they afford the luxury cabin? why or why not?

Question

Marianna Terry

Business

23 June, 06:00

Olivia and her spouse have saved $4,500 for a 12-day cruise vacation in europe. the couple needs $5,000 for a "nice" cabin or $6,000 for a "luxury" cabin. if cabin prices are expected to remain constant for the next three years and olivia expects to earn 6% per year on her investments, will the couple's savings be enough to afford the "nice" cabin in three years? can they afford the luxury cabin? why or why not?

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Answers (1)

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Rachel Mccormick · Answer 1

In this item, we are to solve for the future worth of the $4,500 that is invested at present and will have a compound interest of 6% per year for the next three years. To solve for the future worth,

F = P x (1 + r) ^n

where F is the future worth, P is the present worth, r is the decimal equivalent of the given rate, n is the number of years.

Substituting the known values,

F = ($4,500) x (1.06) ^3

F = $5,359.57

Since the future worth of the money is greater compared to the price of the nice cabin then, Olivia and her spouse will have enough money for the "nice" cabin.