You have to make a balloon payment on your house five years from now of $15,000.If money can earn an average of 6 percent a year for the five year period,how much will you have to place in the account today to have the $15,000 in five years?
A)$11,193.00
B)$11,208.87
C)$20,073.00
D)$20,101.50

Question

Quizplus · Accepted Answer

We need to use the future value formula to determine the amount we need to invest today. 
FV = PV(1 + r)^n 
where FV is the future value, PV is the present value (what we need to find), r is the annual interest rate, and n is the number of years. 
Plugging in the numbers, we get: 
$15,000 = PV(1 + 0.06)^5 
$15,000 = PV(1.3382) 
PV = $11,208.87 (rounded to the nearest cent) 
Therefore, we need to invest $11,208.87 today to have $15,000 in five years. 
The answer is B.

You Have to Make a Balloon Payment on Your House