Question

Arthur and Jeanne Carr estimate that they will need 17,000 to pay for their dream trip to Australia. they now have 8000 which they can invest at an annual rate of 13% compounded quarterly. How long will the Carr's have to wait before they can make their trip?

a.5.89 years

b.6.76 years

c.6.97 years

d. 23.56 years

Answer 1

Information provided:

Future value= $17,000

Present value= $8,000

Interest rate= 13%/4 = 3.25% per quarter

The time it takes Carr's to accumulate $17,000 is calculated by entering the below in a financial calculator:

FV= 17,000

PMT= -8,000

I/Y= 3.25

Press the CPT key and N to compute the time to accumulate $17,000.

The value obtained is 23.5679

Therefore, it will take 23.5679 / 4 = 5.89 years to accumulate $17,000 to make their trip.

Hence, the answer is option a.