Suppose that you drive 50,000 miles per year and gas averages $4 per gallon

A - What will you save in annual fuel expenses by owning a hybrid car averaging 50 miles per gallon rather than an SUV averaging 25 miles per gallon?

B - If you deposit your monthly fuel savings at the end of each month into an annuity that pays 5.2 % compounded monthly, how much will have saved at the end of seven years?

A

Amount of money spent on hybrid that runs for 50 miles/gallon

Amount of gallons consumed per year will be:

50000/50

=10000 gallons

amount spent per year=1000*4=$4000

Amount of money spent on SUV that runs for 25 miles/gallon

amount of gallons consumed per year will be:

50000/25=2000 gallons

amount spent=2000*4=$8000

Amount saved when using a hybrid will be:

8000-4000

=$4000

B] If the savings are put in continuously compounding account for 7 years, the total amount after 7 years will be:

FV=p (1+r/100) ^t

FV=4000 (1+5.2/100) ^7

=$ 5,703.88