Theo needs $40,000 as a down payment for a house 6 years from now.He earns 2.5 percent on his savings.Theo can either deposit one lump sum today for this purpose or he can wait a year and deposit a lump sum.How much additional money must he deposit if he waits for one year rather than making the deposit today?
A)$778.98
B)$811.13
C)$862.30
D)$948.03
E)$1,020.18

Question

Quizplus · Accepted Answer

Present value = $40,000 × [1/(1 + .025)⁶] = $34,491.87Present value = $26,000 × [1/(1 + .025)⁵] = $35,354.17Difference = $35,354.17 - $34,491.87 = $862.30

Theo Needs $40,000 as a Down Payment for a House