In 3 years Yvonne wants to purchase a 60 inch HDTV for $4,500 including taxes. He deposits $3,100 into a savings plan today that pays 4.2% per year, compounded yearly. The extra amount he needs to add after 3 years to have enough money to buy the TV has to be determined.
An amount P at an interest rate r% per annum increases to P*(1+r)^n after n years.
The $3,100 deposited by Yvonne earns interest at 4.2% per year, compounded annually. At the end of 3 years, it increases to 3,100*(1+0.042)^3 = 3,507.23.
The price of the HDTV is an additional (4,500 - 3,507.23) = 992.76.
Yvonne has to add an additional $992.76 at the end of 3 years to be able to buy the HDTV.