Jill wants to save up for a down payment for her first home to be purchased 8 years from now. If she can earn 8% on her savings per year how much does she need to save now to make a $35,000 down payment 8 years from now?

Question

Halle

Business

17 August, 13:19

Jill wants to save up for a down payment for her first home to be purchased 8 years from now. If she can earn 8% on her savings per year how much does she need to save now to make a $35,000 down payment 8 years from now?

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Answers (1)

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Nia · Answer 1

Jill needs to save $18909.41 at 8% for 8 years so as to have $35000 as the down payment required.

Explanation:

The present value formula can be used in the determining the amount money invested at 8% per year so as to give $35000 in 8 years. The formula is given thus:

PV=FV / (1+r) n

FV=future value = $35000

r=rate of return = 8%

n=number of years = 8 years

PV=$35000 / (1+0.08) ^8

PV=$18909.41

However it should be noted that at year end the balance of principal and interest earned is reinvested so as earn more interest on both.