You want to have $15,000 for a down payment on a house 10 years from now. If you can earn 13 percent, compounded annually, on your savings, how much do you need to deposit today to reach your goal?
Given the following information,
Future Value = 15,000
Time period in years = 10
Annual rate of interest = 13% = 0.13
Present value = ?
We know that Present value is given by the following formula,
PV = FV/ (1+r)^t
PV = Present Value
FV = Future Value
r = Annual interest rate
T = number of years
Substituting the given values in the above equation, we get
PV = 15000/ (1+0.13)^10
PV = 15000/ (1.13)^10
PV = 15000/ 3.3946
PV = 4418.83
Therefore, we need to deposit $4418.83 today to reach our goal.
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