Personal Finance 1st Edition by Jack R. Kapoor

Exercise 27

Calculating the Time Value of Money for Savings Goals. If you desire to have $20,000 for a down payment for a house in five years, what amount would you need to deposit today? Assume that your money will earn 5 percent. (Obj. 4)

Step 1 of 2

Amount we would need to deposit today, to get $20,000 for a down payment for a house in 5 years at 5% interest is Present value of $20,000 in 5years at 5% interest. It can be calculated using time value of money tables Exhibit 1-8-C:

Formula to find the Present value is as follows:

Where,