Suppose that a certain car has the following average operating and ownership cos

Question

Suppose that a certain car has the following average operating and ownership costs a. If you drive 40,000 miles per year, what is total annual expense forth car? b. If the total annual expense for this car is deposited at the end of each year into an IRA paying 7.8% compounded yearly, how much win be saved at the end of tour years? a. If you drive 40.000 miles per year, the total annual expense for this car is $ (Round to the nearest dollar as needed) b. if the total annual expense for this car is deposited at the end of each year into an IRA paying 7 8% compounded yearly, the amount saved at the end of four years is $ (Round to the nearest dollar as needed)

Explanation / Answer

a. Total annual expense = total miles X average cost per mile = 40,000 X 0.98 = $ 39,200

b. Amount deposited in 4 years = 39,200 X 4 = $ 156,800

total amount after 4 years = FV = PMT[(1+r)^n-1]/r = 39,200 * [(1+0.078)^4 - 1]/0.078 = $ 176,118.17

Savings = 176,118.17 - 156,800 = $19,318.17

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