Question

Nancy Jackson is saving to buy a house in five years. She plans to put 20 percent down at that time, and she believes that she will need $37,000 for the down payment. If Nancy can invest in a fund that pays 7.40 percent annual interest, compounded quarterly, how much will she have to invest today to have enough money for the down payment

Answer 1

Step-by-step explanation:

Down payment = 37,000 given in the question

Rate of return = 7.4%/4 = 1.85% quarterly return

Total Quarterly = 5*4 = 20

Amount Required = ?

We will apply the Compound Formula = S=p(1+i)^n

S is the future payment that is 37000

P is present payment required to be invested

I is the interest rate that is being paid on investment 7.4% annually divide it by 4 to have quarterly return

N is the number of quarters

P=S/(1+i)^n

P=37,000/(1+1.85% )^20

P=37,000/1.4428

P=25,644

Amount that is required to be invested today is $25,644