Question

You want to have $32,000 for a down payment on a house 5 years from now. If you can earn 4.3 percent, compounded annually on your savings, how much do you need to deposit today to reach your goal?

a) $24,625.44
b) $21,639.73
c) $28,179.77
d) $25,925.58

Answer 1

To reach a goal of $32,000 for a down payment on a house 5 years from now, you need to deposit $24,625.44 today. Therefore, the correct option is A.

Step-by-step explanation:

To find out how much you need to deposit today, you can use the formula for compound interest:

A = P(1+r/n)^(nt)

where:

• A is the future value of the investment ($32,000 in this case)
• P is the principal amount (the amount you need to deposit today)
• r is the annual interest rate (4.3% in this case)
• n is the number of times interest is compounded per year (compounded annually in this case)
• t is the number of years the money is invested (5 years in this case)

Substituting the given values into the formula, we have:

32,000 = P(1+0.043/1)^(1*5)

Simplifying the equation, we get:

P = $24,625.44