Question

Earl Miller, owner of a Papa Gino's franchise, wants to buy a new delivery truck in 6 years. He estimates the truck will cost $30,000. If
Earl invests $20,000 now at 5% interest compounded semiannually, will Earl have enough money to buy his delivery truck at the end
of 6 years?

Answer 1

Answer:

• No, he will not have enough money to buy his delivery truck at the end of 6 years.

Explanation:

To find how much money Earl Miller, owner of Papa Gino's franchise, will have in 6 years, you must calculate the value of the $20,000 that he invests at the 5% compounded semiannually:

• Semianual compounded interest: 5% / 2 = 0.05/2 = 0.025

Equation:

• $Value=Investment\times (1+r/n)^{(n\times t)}$

Where r/n was already calculated: r/n = 0.05/2 = 0.025; and t is the number of years: 6.

        $Value=\ 20,000\times (1+0.025)^{(2\times 6)}\\\\Value=\ 26,899.78$

Hence the value of the money invested is less than the value of the truck, and he will not have enough money to buy his delivery truck at the end of 6 years.