Question
You have to decide how to save enough money to purchase a used car in three years. You have the $1000 that you saved up
You have to decide how to save enough money to purchase a used car in three years. You have the $1000 that you saved up and you plan to continue working. According to your estimates, you can save an additional $60 per month to put towards the car purchase. After conducting some research at the banks, you have decided on two options (see below). You need to figure out which option will yield the most money after the three years.
Option #1-CD for 3 years Interest rate of 3% compounded monthly. No money can be added to the CD. However you can save your money on the side.
Option #2-CD for 1 year Interest rate of 2% compounded quarterly. You can add your earned money to the investment at the end of each year. You will renew it each year for 3 years. Explain what you have learned about investing in terms of rates, compounding, and length of contract.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started