Jerome is buying a car for $7000.

Question

Jerome will be buying a used car for $7000 in 4 years. How much money should he ask his parents for now so that if he invests it at 4% compounded continuously, he will have enough money to buy the car

Answer 1

For continuous interest you will need the relationship A=Pe^rt where A is your future amount ($7000), P is your initial amount (unknown), r is the annual rate of interest (.04) and t is the number of years it is invested (4).  e of course is the constant and is the base of the natural log function, ln x.

 

So solve for P to get your answer:

 

7000 = Pe^(.04*4) or P=7000e^-.16 = $5965.01