(Q. 1 IN B) I WANT TO BUY A CAR THAT I KNOW WILL COST ME $43,860 (B...

2. (Q. 1 in B) I want to buy a car that I know will cost me $43,860 (before taxes)

in ten years. How much must I save annually, beginning one year from now, in

order to accumulate the purchase price plus all applicable taxes by the end of

Year 10? In this case taxes are 6% GST and 8% PST which are each applied to

the purchase price. Assume that interest is calculated at 9 percent annually.

A) $2,887

B) $3,291

C) $4,500

D) $4,587

Answer B

Amount required in ten years = $43,860 × (1.14) = $50,000.40

Using the FV annuity formula where

FV= PMT× ((1+r)^t – 1)

r

10

−

((1.09)

1)

.09

$50,000 = PMT ×

= PMT × 15.1929

PMT = $3,291.04.