You plan to place a $55,000 down payment on a lake cabin in Southern Oregon in five years.If you invest in a long-term CD earning an annual rate of 4.50%,how much would you need to invest today to have enough for the down payment in five years?
A)$23,326
B)$30,605
C)$44,135
D)$46,264

Question

Quizplus · Accepted Answer

We need to find the present value of the amount we need after five years, which is $55,000. Using the formula for present value of a single amount:

PV = FV / (1 + r)^n

PV = $55,000 / (1 + 0.045)^5
PV = $44,135.23

Therefore, you would need to invest $44,135.23 today to have enough for the down payment in five years.

You Plan to Place a $55,000 Down Payment on a Lake