Question

every month, tristen deposits $488 into an interest-bearing account to save for a down payment on a house. The interest rate on the account is 5.27% compounding annually. What is the present value of the investment if tristan purchases a house in 15 years?
a)$4,974.08
b)$5,236.22
c)$59,689.00
d)$62,834.61
@Hunus

Answer 1

\[FV = \frac{d*((1+\frac{r}{n})^{nt} - 1)}{\frac{r}{n}}\]

Answer 2

That's the formula you will need to use. d represents the amount she deposits each time period

Answer 3

thanks

Answer 4

yup :)

Answer 5

i did that formula but i keep getting 21,891.47...its not one of the choices

Answer 6

@e.mccormick

Answer 7

OK, so you need the future value after 15 years of that monthy.

Answer 8

yeah but how would i find it?

Answer 9

I wanted to check that formula, I think it is right, but just to be sure.... looking keeps getting me the wrong ones. LOL. I had it not long ago.

Answer 10

ok lol

Answer 11

Ah, I see a few that divide by the interest, but when you divide by a fraction, it inverts and multiplies, so that makes sense.

Answer 12

So what numbers did you put in hwere?

Answer 13

AH HA! I see an issue with how this formula works....

This formula, as I recall, it based on the payment being the same as the compounding period. In this problem, the compounding period is annually, but the depostis are monthy. You need to do 12 months of deposits as a single annual one.

Answer 14

d- 488
r/n - 5.27%/2=0.02635
nt- 15*2=30

Answer 15

so instead of 2 do i put 12?

Answer 16

You may be able to get it to work that way. It would break up the interest, but I am not sure if that will work right. I am still looking for the formula I used last week. LOL. If I find it, I'll run it with a payment of 5856 as if it was one payment a year.

Answer 17

ok thanks

Answer 18

i tried it n it didnt work...

Answer 19

\[A = P * \left[\frac{(1+i)^n - 1 }{i}\right] * (1+i)\] (if payment are being made at the start)
(it will be P * [{(1+i)^n - 1 }/i] if payments are made at the end of the year)

Where :

A = final amount
P = installment each time
n = total number of installments
i = interest rate for that tenure (example if yearly return is 24% , but payments are made monthly then i = 24/12 = 2%)

That seems to be the same thing as above....

Answer 20

i got 982.44?

Answer 21

There is a problem with the question. Lets assume matress method. Every month, 488 under a matress. So 488*12*15=? So no interest at all.

Answer 22

Look at that answer next to your possible answers and you will see the issue.

Answer 23

ok

Answer 24

its too high

Answer 25

And that is without interest... They messed up the problem.

Answer 26

but if you multiply that by 5.27% it is closer...

Answer 27

No, it does not work that way.

Answer 28

oh ok

Answer 29

The answer should be well over $100,000 with that rate and deposit system. Just the depostired money is close to $90,000 so the investment would have compounded to far more than that.

Answer 30

Check the numbers in the problem. make sure it is 15 years and $488.

Answer 31

it is

Answer 32

And it says present value, not return, or interest value?

Answer 33

hmmm.... even return on investment would not get one of those numbers.

Answer 34

its present value

Answer 35

You have the unfortunate situation of being the recipient of a set of answers that are male bovine animal's experiment. They make no sense at all.

Answer 36

oops... excrement... You get the point.

Answer 37

ya

Answer 38

The other problem I see is they even used the wrong term. "present value of the investment" is a reference to how things decrease in buying power due to inflation. So, i don't know why they would word the poroblem as a future value problem then say it was a present value problem.

Answer 39

The problem isn't wrong... They just want you to find out the present value NOT what he's going to have in 15 years. I hate this problem, I picked $4,974.08. I don't know if I'm right or not I just know the question isn't wrong.