Jack and Tracy would like to have $10,000 for a down payment on a new condo. A savings account at their local credit union will pay 2% per year compounded monthly. How much should they deposit now in this account to have the down payment in 3 years

They should deposit $4,9,02 in the account.

Explanation:

Present value is the value of future cash flow in present term. The amount received in future have more value today than in future because of opportunity of reinvestment of cash flow.

Number of periods = 3 x 12 = 36 months

Present value = Future value / (1 + r) ^n

Present value = $10,000 / (1 + 0.02) ^36

Present value = $10,000 / 2.04

Present value = $4,902.23 = $4,902