Question

How much must be deposited today into the following account in order to have $40,000 in 6 years for a down payment on a house? Assume no additional deposits are made.

An account with a monthly compounding and an APR of 4%

Answer 1

We can use the present value formula:

Where,
PV = Present value or the deposit needed today
FV = Future value
i = rate of interest in decimal form (i.e 4% = 0.04)
a = number of compounding in a year, (when compounding is monthly, a =12)
n = number of years

Therefore,

Therefore, the amount that should be deposited today is $31,477.68.