Question

If you desire to have $25,000 for a down payment for a house in six years, what amount would you need to deposit today? Assume that your money will earn 1 percent. Use Exhibit 1-C. (Round time value factor to 3 decimal places and final answer to the nearest whole number.)

Answer 1

Explanation:

To have $25,000 for a down payment for a house in six years, you would need to deposit $16,822 today, assuming your money earns 1% interest.

The present value factor for 6 years at 1% is 0.67274. This means that you would need to invest $0.67274 today in order to have $1 in 6 years at 1% interest. Therefore, you would need to deposit $16,821.50 ($25,000 * 0.67274) today in order to have $25,000 in 6 years. This amount rounds to $16,822.