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14 September, 08:54

John got a part time weekend job at a local restaurant to save for a new car. He plans on depositing $120 per month for the next 4 years in a savings account with a rate of 4% per year compounded monthly. How much will he have saved toward his down payment at the end of the 4 year period?

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  1. 14 September, 11:30
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    FV = $6,230.15

    Explanation:

    Giving the following information:

    He plans on depositing $120 per month for the next 4 years in a savings account with a rate of 4% per year compounded monthly.

    First, we need to determine the monthly rate:

    Interest rate = 0.04/12 = 0.0033

    Now, we need to use the following formula to determine the final value:

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

    A = deposit = 120

    n = 4*12 = 48

    i = 0.0033

    FV = {120*[ (1.0033^48) - 1]} / 0.0033

    FV = $6,230.15
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