Present value: tracy chapman is saving to buy a house in five years. she plans to put 20 percent down at that time, and she believes that she will need $35,000 for the down payment. if tracy can invest in a fund that pays 9.25 percent annually, how much will she need to invest today

Given that Tracy will need to make the down payment of $35,000 in 5 years time. The amount that she'll have to invest today in order to have the down payment in 5 years' time will be given by:

A=p (1+r/100) ^n

where;

A=future amount

p=principle amount

r=rate

n=time

thus;

35000=p (1+9.25/100) ^5

35000=1.5564p

p=35000/1.5564

p=22,488.52

We conclude that she will have to invest $22,488.52 today.