*CORRECT ME [WORK IS SHOWN]

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?

$8,872.33

$27,770.97

$46,580.69

Question

*CORRECT ME [WORK IS SHOWN]

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?

 $8,872.33

 $27,770.97

 $46,580.69 <---

 $34,349.00
------
* MY WORK DOWN BELOW IN THE LINK *
http://www.wolframalpha.com/input/?i=40%2C000(1%2B0.0305)%5E5&t=crmtb01

oaktree · Answer

Actually, the compounding value is 60, because you're compounding monthly (12 times) a year for five years, or 12 x 5 = 60 times. So the correct formula is $$40,000 \times (1 + (0.0305/12))^{60}$$

oaktree · Answer

Which will give you an answer closer to the correct answer, even though by luck you were still right. This is because this increased compounding value only increases the amount you earn by a small amount, but still it's better to do things right.

anonymous · Answer

@OakTree thanks for the extra notes ! :D

oaktree · Answer

No problem. :)