You intend to buy a vacation home in eight years and plan to have saved $75,000 for a down payment.How much money would you have to place today into an investment that earns 9% per year to have enough for your desired down payment?

Question

Quizplus · Accepted Answer

To find out how much money you need to invest today to reach a future sum, you can use the formula for the present value of a single sum, which is PV = FV / (1 + r)^n, where PV is the present value (the amount you need to invest today), FV is the future value (the amount you want to have in the future, in this case, $75,000), r is the annual interest rate (9%, or 0.09 as a decimal), and n is the number of years (8 years in this case). Plugging in the numbers: PV = $75,000 / (1 + 0.09)^8 = $75,000 / (1.09)^8 ≈ $37,640.

You Intend to Buy a Vacation Home in Eight Years