Tim has been saving for a down payment on a car. He invested 4,000 in an account earning 2.5% interest compounded semi-annually. After 7 years, he is ready to buy his new car. How much does he have in his account for a down payment?

Solution

T im ha s b ee n s a v in g f or a d o w n p a y m e n t o n a c a r . He in v es t e d 4, 000 in an a cco u n t e a r nin g 2.5% in t eres t co m p o u n d e d se mi - ann u a ll y . A f t er 7 ye a rs, h e i s re a d y t o b u y hi s n e w c a r . Ho w m u c h d oes h e ha v e in hi s a cco u n t f or a d o w n p a y m e n t ?

Amount : 4759.82

Solution steps

Translate the problem into an equation:

A = 4000 (1 + \frac{0.025}{2})^{2 \cdot 7}

4000 (1 + \frac{0.025}{2})^{2 \cdot 7} = 4759.81899 \dots

Round to the nearest hundredth:

4759.82

Amount : 4759.82