Marilyn knows that she needs $45,000 for a down payment on a house. She found an investment that earns 3.15% 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?

$38,450.39

$30,871.96

$44,296.89

$52,665.27

Question

Marilyn knows that she needs $45,000 for a down payment on a house. She found an investment that earns 3.15% 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?

 $38,450.39

 $30,871.96

 $44,296.89

 $52,665.27

anonymous · Answer

the third choice, i believe.

phi · Answer

I would use the compound interest formula see http://en.wikipedia.org/wiki/Compound_interest#Compound_Interest $$ \text{Future Value}= P (1+\frac{r}{n})^{nt} $$ you are told r is 0.0315, compounded monthly, so n is 12, you are told t is 5 years. you want the future value to be 45000 now solve for P, how much to deposit.

phi · Answer

if we replace the variables with numbers you get
$$ P (1+\frac{0.0315}{12})^{12\cdot 5} = 45000 $$
or
$$ P (1.002625)^{60}= 45000 $$

can you finish ?

givingtree · Answer

A