Maintenance and insurance-rule of thumb

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A “rule of thumb” for automobile owners is that the yearly total costs (maintenance and insurance) for the first five years of operation of a new (i.e., not used) automobile will average roughly 10% of the vehicle’s purchase price. Assume you have just purchased a new automobile for $25,000. Assume also that you wish to invest a certain amount of money each month for the next twelve months to build up a fund to take care of the anticipated costs for next year.

If you are able to invest such funds at an annual rate of 2%, compounded monthly, how much should you invest each month so that after 12 months, you have invested enough to cover the anticipated average yearly costs for next year?

Reference no: EM13734581

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