How much must be deposited today into the following account in order to have 35,000 in 6years for a down payment on a house? Assume no additional deposits are made.An account with monthly compounding and an APR of 7%

Solution

Ho w m u c h m u s t b e d e p os i t e d t o d a y in t o t h e f o ll o w in g a cco u n t in or d er t o ha v e 35, 000 in 6 ye a rs f or a d o w n p a y m e n t o n a ​ h o u se ? A ss u m e n o a dd i t i o na l d e p os i t s a re ma d e . A n a cco u n t w i t h m o n t h l y co m p o u n d in g an d an A PR o f 7​%

Principal : 23024.72

Solution steps

Translate the problem into an equation:

35000 = P (1 + \frac{0.07}{12})^{12 \cdot 6}

Solve for

P, 35000 = P (1 + \frac{0.07}{12})^{12 \cdot 6} : P = 23024.72

Principal : 23024.72