Question

Missy knows that she needs $40,000 for a down payment on a house. She found an investment that earns 3.05% interest compounding monthly. She would like to purchase the home in 5 years. How much should she put in the account now to ensure she has her down payment?

Answer 1

Let the amount of money Missy have to put in account now to be x

in 5 years there will be 60 month
by using geometric progression where the n th term = a*r^(n-1)
and in this case,
a=x , 60th term is 40000 and n = 60
r= 1.0305
therefore,
40000= x * (1.0305)^59
x=6795.61
So she will need to put 6795.61 into the account.