Chuck is looking to invest $15,000 now so that he can purchase a new car in 4 years. The expected price of the car, after tax, title and registration, is expected to be $18,232.65. What is the interest rate required on Chuck's investment to achieve this amount?
A)4%
B)5%
C)6%
D)7%

Question

Quizplus · Accepted Answer

To find the required interest rate, we can use the formula for the future value of a single lump sum: $FV = PV(1 + r)^n$, where FV is the future value, PV is the present value, r is the interest rate per period, and n is the number of periods. Here, FV = $18,232.65, PV = $15,000, n = 4 years, and we need to solve for r.Rearranging the formula to solve for r gives us: $r = \left(\frac{FV}{PV}\right)^{\frac{1}{n}} - 1$.Plugging in the given values: $r = \left(\frac{18,232.65}{15,000}\right)^{\frac{1}{4}} - 1 \approx 0.05$.Therefore, the interest rate required is approximately 5%.

Chuck Is Looking to Invest $15,000 Now So That He