Question

Present value: tracy chapman is saving to buy a house in five years. she plans to put 20 percent down at that time, and she believes that she will need $35,000 for the down payment. if tracy can invest in a fund that pays 9.25 percent annually, how much will she need to invest today

Answer 1

Given that Tracy will need to make the down payment of $35,000 in 5 years time. The amount that she'll have to invest today in order to have the down payment in 5 years' time will be given by:
A=p(1+r/100)^n
where;
A=future amount
p=principle amount
r=rate
n=time
thus;
35000=p(1+9.25/100)^5
35000=1.5564p
p=35000/1.5564
p=22,488.52
We conclude that she will have to invest $22,488.52 today.