Question

You need to have $35,000 for a down payment on a house 5 in years. If you can earn an annual interest rate of 3.7 percent, how much will you have to deposit today?

Answer 1

Answer:

$29,185.98

Explanation:

Compounding and discounting are the methods used to determine the relationship between present and future value.

Compounding is the method used to determine the future worth of an amount today while discounting is the method used to determine the present value of a future amount.

Both are related by

Fv = Pv(1 + r)^n

where Fv = future amount

Pv = present value

r = rate

n = time

Therefore,

35000 = Pv(1 +0.037)^5

Pv = 35000(1 +0.037)^-5

Pv = $29,185.98

You would have to deposit $29,185.98 to be able to make the down payment of $35,000 on a house in 2 years