Family wants to buy van in 2 years, they want to make a down payment of 25% of the estimated purchase price of $29,000. Find the amount they need to invest to make the down payment if funds earn 10% compounded semiannually.

Answer 1

P = Po(1+r)^n

P = 0.25 * 29,000 = $7,250 To be
saved in 2 years.

r = 0.10/2 = 0.05 = Semi-annual % rate.

n = 2comp./yr. * 2 yrs. = 4 Compounding periods.

Po(1.05)^4 = 7250.
Po = 7250/1.05^4 = $5964.59 To be invested now.

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