9 years from now, you plan to buy a house for $300,000

Finance Nov 28, 2020

9 years from now, you plan to buy a house for $300,000. The down payment is 10% of the house value ($30,000).
If you can earn 2.50% interest. compounded annually, on your savings, how much do you need to deposit today to have $30,000 in 9 years?
(Round your answer to the nearest hundredth: two decimal places. Also, if your answer is an even number, enter it with two decimal places; e.g., 34.00)

Expert Solution

Computation of Deposited Amount Today (Present Value):

Present Value = Future Value/(1+Rate)^Time

= $30,000/(1+2.50%)^9

= $30,000/1.2489

Present Value = $24,021.85

So, You need to deposit $24,021.85 today to have $30,000 in 9 years.

Computation of Compound Interest:

Compound Interest = Future Value - Present Value

= $30,000 - $24,021.85

Compound Interest = $5,978.15

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