Suppose that you have $10,000 that you would like to use toward the purchase of

Question

Suppose that you have $10,000 that you would like to use toward the purchase of a house. The houses that you are interested in buying have an average value of $125,000. In order to purchase a house like this, you would like to make a down payment that is 20% of the value of the house. Since you do not currently have enough money for the down payment, you decide to invest your $10,000, and wait until you have enough money from your investment for the down payment. The best investment that you could find is a CD that pays 8.4% APR compounded quarterly

.

How long will it take until you have enough money for the down payment? We could solve this problem using the compound interest formula from Section 3.2. Instead, we will create an Excel spreadsheet that will track the account balance for each period.

1.    AAt the top of spreadsheet, set the parameters for this situation: Principle (P) and Annual Interest Rate (r).

2.         Set up the following 4 columns:

Period - Keeps track of the number of compounding periods. Start with Period 0.

Years

Explanation / Answer

Assuming you just need the answer here you go

125,000*.20= 25,000

25,000= 10,000(1 +.084/4)^n

(1,021)^n= 25/10= 5/2

nln (1.021)= ln5/2

n= ln 5/2/ln 1.021= 44,09 or 11 years.

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