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 interest will you earn on your deposit in five years?
A) $3,791.13
B) $3,807.00
C) $5,073.00
D) $5,101.50

Question

Quizplus · Accepted Answer

To find the interest earned, first calculate the present value of the $15,000 needed in five years. Using the formula for present value: PV = FV / (1 + r)^n, where FV is the future value ($15,000), r is the annual interest rate (0.06), and n is the number of years (5). PV = $15,000 / (1 + 0.06)^5 ≈ $11,208.87. The interest earned is the difference between the future value and the present value: $15,000 - $11,208.87 = $3,791.13.

You Have to Make a Balloon Payment on Your House