Question

Joyce Thomas wants to buy a house in six years. She hopes to have $25,000 at that time. If the bank CD she wants to invest in will pay 7.5 percent annually, how much will she have to invest today

Answer 1

Answer:

$16,199.

Explanation:

She will need to invest an amount that is equivalent to the present value of $25,000, at 7.5 % for six years. $25,000 represents the future value.

The applicable formula is

PV =   FV    

  (1+r)n

Where

FV, future value is $25,000

r is interest rate 7.5% 0r 0.075

n is period six years

PV =  $25,000

 (1 + 0.075)6

pv =  $25,000/ 1.54330

PV=  $16,199.