Theo wants to have $40,000 for a down payment on a house five years from now. He can either deposit one lump sum today or he can wait one year and deposit a lump sum. Assume an annual interest rate of 3.5 percent. How much additional money must he deposit if he waits for one year rather than making the deposit today?

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marlontshimanga marlontshimanga · Answer 1 · 2020-02-25T03:32:22+01:00

Answer:

$1932.37

Explanation:

To find out how much additional money he must deposit if he waits for 1 year rather than making a deposit today we need to find the difference:

Difference = Value after 1 year - Present value

We first convert the interest rate percentage by dividing interest rate value by 100

Present Value = $40 000 / (1 + 0.035)5 = $7729.47

Value after 1 year = $40 000 / (1 + 0.035)4 = $9661.81

Difference = $9661.81 - $7729.47 = $1932.37