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Now a person who is 40 years old wants to buy a house that will cost...

Now a person who is 40 years old wants to buy a house that will cost 12000 dollars when he turns 65. Now that the bank has 3000 dollars in money and the semi-annual compound can fulfill this request for 6% annual nominal interest rate?

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Answer #1

We are given the following information:

Value of account at time 0 PV $       3,000.00
rate of interest r 6.00%
number of years n 25
Semi Annual Compounding frequency 2
Future value FV To be calculated

We need to solve the following equation to arrive at the required FV

So the FV is $13151.72 which is more than sufficient to cover the 12000 cost of the new house so 6% interest rate is sufficient.

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