Mike would like to have $25,000 in 4 years to pay off a balloon payment on his business mortgage . His money market account is paying 1.825% compounded daily. disregarding leap years, how much money must mike put in his account now to achieve his goal? Round nearest whole dollar.

Answer 1

P = Po(1+r)^n = $25,000

r = (1.825%/365)/100% = 5*10^-5 = Daily
% rate expressed as a decimal.

n = 365Comp./yr. * 4yrs. = 1460 Compounding periods.

Po(1.00005)^1460 = 25000
Po = 25,000/1.00005^1460 = $23,240.