You plan to place a $40,000 down payment on a lake cabin in Northern Minnesota in five years.If you invest in a long-term CD earning an annual rate of 5.50%,how much would you need to invest today to have enough for the down payment in five years?
A)$33,326
B)$30,605
C)$24,379
D)$18,264

Question

Quizplus · Accepted Answer

Using the formula for compound interest, we can calculate the present value (P) needed to reach the future value (FV) of $40,000 in 5 years at an interest rate (r) of 5.50%: 
FV = P*(1 + r)^n 
$40,000 = P*(1+0.055)^5 
$40,000 = P*1.3382 
P = $30,604.74
Therefore, the best choice is B, as it is the closest to the calculated value.

You Plan to Place a $40,000 Down Payment on a Lake