Two part question. thank you for your time Suppose that a certain car has the fo

Question

Two part question. thank you for your time

Suppose that a certain car has the following average operating and ownership costs Average Costs per Mile Operating $0.28 Ownership $0.74 Total $1.02 a. If you drive 30,000 miles per year, what is total annual expense for this car? b. If the total annual expense for this car is deposited at the end of each year into an IRA paying 8.5% compounded yearly, how much will be saved at the end of four years? a. If you drive 30,000 miles per year, the total annual expense for this car is (Round to the nearest dollar as needed.)

Explanation / Answer

Solution:

a. Total annual expense = total miles X average cost per mile = 30,000 X 1.02 = $ 30,600

b. Amount deposited in 4 years = 30,600 X 4 = $ 122,400

total amount after 4 years = FV = PMT[(1+r)^n-1]/r = 30,600 * [(1+0.085)^4 - 1]/0.085= $ 138,909.1322

Savings = 138,909.1322- 122,400 = $16,509.13

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