Question

Dawson is saving for a down payment to buy a house. He has opened a bank account that earns 2.5% interest compounded monthly. How much should Dawson invest in the account so that the account balance after 6 years is $20,000?

Answer 1

Answer:

Present Value of the Investment is $17246.

Explanation:

The Discounting formula would be used to discount the future value $20,000 at the required rate of 2.5% for 6 number of years. So the formula is as under:

Present Value = Future Value / (1+r)^n

By putting values, we have:

Present Value = $20,000 / (1+2.5%)^6 = $20000 / 1.120 = $17246

Dawson must invest now $17246 to receive $20000 after 6 number of years.