Question

You want to have $30,000 saved 5 years from now to buy a house. How much less do you have to deposit today to reach this goal if you can earn 3.5 percent rather than 2.5 percent on your savings

Answer 1

Answer:

If the deposit made today earns 2.50% on the savings

FV = PV (1+r)^n

$30,000 = PV / (1 + 0.025)^5

PV = $30,000 / (1+ 0.025)^5

PV = $26,515.63

If the deposit made today earns 3.50% on the savings

FV = PV (1+r)^n

$30,000 = PV (1+0.035)^5

PV = $30,000 / (1+0.035)^5

PV = $25,259.20

So, the amount less to be deposited today to reach this goal = $26,515.63 - $25,259.20 = $1,256.43