How much must be deposited today into the following account in order to have 40 000 in 5years for a down payment on a house? Assume no additional deposits are made.An account with annual compounding and an APR of 6%

Solution

Ho w m u c h m u s t b e d e p os i t e d t o d a y in t o t h e f o ll o w in g a cco u n t in or d er t o ha v e 40000 in 5 ye a rs f or a d o w n p a y m e n t o n a ​ h o u se ? A ss u m e n o a dd i t i o na l d e p os i t s a re ma d e . A n a cco u n t w i t h ann u a l co m p o u n d in g an d an A PR o f 6​%

Principal : 29890.33

Solution steps

Translate the problem into an equation:

40000 = P (1 + \frac{0.06}{1})^{1 \cdot 5}

Solve for

P, 40000 = P (1 + \frac{0.06}{1})^{1 \cdot 5} : P = 29890.33

Principal : 29890.33