To buy his favorite car, Larry is planning to accumulate money by investing his Christmas bonuses for the next five years in a security which pays a 10 percent annual rate of return. The car will cost $20,000 at the end of the fifth year and Larry's Christmas bonus is $3,000 a year. Will Larry accumulate enough money to buy the car?

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25 October, 22:26

To buy his favorite car, Larry is planning to accumulate money by investing his Christmas bonuses for the next five years in a security which pays a 10 percent annual rate of return. The car will cost $20,000 at the end of the fifth year and Larry's Christmas bonus is $3,000 a year. Will Larry accumulate enough money to buy the car?

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Gerardo Bryant · Answer 1

Larry won't have enough money to buy the car. FV = $16,923

Explanation:

Giving the following information:

The car will cost $20,000 at the end of the fifth year and Larry's Christmas bonus is $3,000 a year.

Interest rate = 10%

To calculate the future value at the end of tje fifth year we need to use the following formula. The last deposit is made at the end of the fifth year.

FV = {A*[ (1+i) ^n-1]}/i

A = annual deposit

FV = {3,000*[ (1.10^4) - 1]}/0.10 + 3,000 = $16,923

Larry won't have enough money to buy the car.