Nancy Jackson 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 $37,000 for the down payment. If Nancy can invest in a fund that pays 7.40 percent annual interest, compounded quarterly, how much will she have to invest today to have enough money for the down payment

Explanation:

Down payment =   37,000 given in the question

Rate of return   =   7.4%/4  =  1.85% quarterly return

Total Quarterly  =  5*4        = 20

Amount Required =  ?

We will apply the Compound Formula = S=p(1+i)^n

S is the future payment that is 37000

P is present payment required to be invested

I is the interest rate that is being paid on investment 7.4% annually divide it by 4 to have quarterly return

N is the number of quarters

P=S/(1+i)^n

P=37,000/(1+1.85% )^20

P=37,000/1.4428

P=25,644

Amount that is required to be invested today is $25,644

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