Question

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?

Answer 1

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

Where,

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.