You’re trying to save to buy a new $245,000 Ferrari. You have $50,000 today that can be invested at your bank. The bank pays 4.6 percent annual interest on its accounts. How long will it be before you have enough to buy the car?
You’re trying to save to buy a new $245,000 Ferrari. You have $50,000 today that can be invested at your bank. The bank pays 4.6 percent annual interest on its accounts. How long will it be before you have enough to buy the car?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
You’re trying to save to buy a new $245,000 Ferrari. You have $50,000 today that can be invested at your bank. The bank pays 4.6 percent annual interest on its accounts.
How long will it be before you have enough to buy the car?
Expert Solution
Step 1
The savings in a bank earn compound interest as the money of the account holder earns interest in a period which is then added to the account. This new balance earns interest in the next period which is why it is referred to as interest on interest.
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