The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
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Josh and Sara want to buy a house in four years.If the house will cost $180,000,how much must they deposit at the end of every year for the next four years at 5% compounded annually in order to buy the house?
A)$32,040
B)$36,990
C)$41,763
D)$45,000

Question

The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.  
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Josh and Sara want to buy a house in four years.If the house will cost $180,000,how much must they deposit at the end of every year for the next four years at 5% compounded annually in order to buy the house?
A)$32,040
B)$36,990
C)$41,763
D)$45,000

Quizplus · Accepted Answer

Using Table 9-2, we can find the present value of the $180,000 house as $148,644.63. This is the amount that Josh and Sara need to save over the next four years.
Using Table 9-3 for an interest rate of 5% and n=4, we can find the annuity discount factor to be 3.54595.
Dividing $148,644.63 by the annuity discount factor, we get the annual deposit amount of $41,762.83, rounded up to $41,763. Therefore, Choice C is the correct answer.

The Solution to This Problem Requires Time Value of Money