Question

Jill wants to save up for a down payment for her first home to be purchased 8 years from now. If she can earn 8% on her savings per year how much does she need to save now to make a $35,000 down payment 8 years from now?

Answer 1

Answer:

Jill needs to save $18909.41 at 8% for 8 years so as to have $35000 as the down payment required.

Explanation:

The present  value formula can be used in the determining the amount money invested at 8% per year so as to give $35000  in 8 years.The formula is given thus:

PV=FV/(1+r)n

FV=future value =$35000

r=rate of return =8%

n=number of years =8 years

PV=$35000/(1+0.08)^8

PV=$18909.41

However it should be noted that at year end the balance of principal and interest earned is reinvested so as earn more interest on both.