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11 December, 08:49

You want to have $25,000 saved 6 years from now to buy a house. how much less do you have to deposit today to reach this goal if you can earn 5.5 percent rather than 5 percent on your savings? today's deposit is the only deposit you will make to this savings account this problem requires solving for

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  1. 11 December, 09:15
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    To find the present value the formula is

    P=A: (1+r) ^t

    P present value

    A future value 25000

    R interest rate

    T time 6

    So we need to find the present value once at 5.5% and the present value 5%

    At 5.5% the present value is

    P=25,000: (1+0.055) ^ (6) = 18,131.15

    At 5% the present value is

    p=25,000: (1+0.05) ^ (6) = 18,655.38

    The difference

    18,655.38-18,131.15=524.24
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