Question

Question 5 (1 point)

John plans to buy a vacation home in 11 years from now and wants to have saved $89,889 for a down payment. How much money should he place today in a saving account that earns 6.68 percent per year (compounded daily) to accumulate money for his down payment? Round the answer to two decimal places

Answer 1

Answer :

We know that formula for daily compounding is

A = P (1 + r/n)^(nt)

Where:

A = the future value of the investment/loan, including interest
P = the principal investment amount (the initial deposit or loan amount)
r = the annual interest rate (decimal)
n = the number of times that interest is compounded per year
t = the number of years the money is invested or borrowed for

substituting the values in the above formula,

$89,889 = P [ 1 + ( 0.0668 / 365 )^365*11 ]

P = 43,113.79

Therefore, John should invest $43,113.79 today so as to pay $89,889 after 11 years.