Question 4. Now that Earl has figured out how to purchase his first vehicle, he needs to figure out how he is going to pay for his auto insurance. Remember, Earl is just 15, so he still has a year before he can purchase his new truck. Earl talks to his family insurance agent and determines that his full-coverage insurance will cost him about $1500 a year and he can either pay it all at once, or pay a one-time yearly finance charge of $30, which will allow him to split the premium (plus the $30 charge) into 12 equal monthly payments. Earl is getting a hang of this finance thing and has a little bit of money that he has saved up over the last few years. He determines that if he plans ahead, and deposits money now in a savings account, that instead of paying the insurance company to finance his car insurance for a year, he can earn interest from the bank now, and then have enough money to pay the insurance all at once. This should save him money. So Earl heads to the bank to make a deal.

The bank will pay 3.9% per annum on its savings account. Earl asks for weekly compounding because he knows that more frequent compounding results in higher earnings. How much money will Earl need to deposit now to have $1500 one year from now?

How much money did Earl save by using the savings account and paying all at once rather than making the monthly payments to the insurance company?