Question

Scott is saving for a down payment to buy a house. The account earns 7.7% interest compounded semi-annually, and he wants to have $10,000 in 5 years. What must his principal be

Answer 1

6853.86

Step-by-step explanation:

Answer 2

$6,853.86 ≈ $6,854

Step-by-step explanation:

we need to determine the present value of Scott's account:

present value = future value / (1 + i)ⁿ

• future value = $10,000
• i = 3.85%
• n = 5 x 2 = 10 periods

present value = $10,000 / (1 + 0.0385)¹⁰ = $10,000 / 1.459 = $6,853.86

the present value formula allows us to calculate how much a future cash flow is in today's dollars