I want to buy a car with cash in 4 years. I have $10,000.00 that I can invest today. I can get a bond earning 4%. How much will I have for the purchase?
This is what I am thinking for an answer but not quite sure:
N=4 years
I=4%
PV=10,000
for a total of 11698.59
Am I on the right path or is this not the formula I use?
I = PRT is the formula for simple interest. I get $11,600 figuring simple interest.
You are on the right path! To calculate how much you will have in 4 years by investing $10,000 with an interest rate of 4%, you can use the formula for compound interest. The formula is:
A = PV(1 + r/n)^(n*t)
Where:
A is the final amount (the amount you will have after 4 years)
PV is the principal amount (the initial investment)
r is the annual interest rate (as a decimal)
n is the number of times interest is compounded per year
t is the number of years
In your case:
PV = $10,000 (the principal amount)
r = 4% (as a decimal, 0.04)
n = 1 (assuming the interest is compounded annually)
t = 4 (number of years)
Using these values, let's calculate the final amount:
A = $10,000(1 + 0.04/1)^(1*4)
A = $10,000(1 + 0.04)^4
A = $10,000(1.04)^4
A = $10,000(1.16985856)
A = $11,698.59
So, after 4 years, you will have approximately $11,698.59 if you invest $10,000 in a bond earning 4% interest compounded annually.