Planning a wedding in 6 years.
Estimated cost $55,000
How much do you have to deposit today in one lump sum to fully pay for it if you earn 7.5% per year on investment?
let the present value of the deposit be P
P(1.075)^6 = 55000
p = 55000/1.075^+ = $35637.88
(elope, skip the expensive wedding, and use it as a downpayment for a house)
To calculate the lump sum you need to deposit today to fully pay for your wedding in 6 years, we can use the future value formula for compound interest.
The formula to calculate the future value (FV) of an investment is:
FV = PV * (1 + r)^n
Where:
- PV is the present value (the amount you need to deposit today)
- r is the interest rate (7.5% or 0.075 as a decimal)
- n is the number of periods (6 years)
In this case, the future value (FV) is the estimated cost of your wedding, which is $55,000.
Let's substitute the values into the formula and solve for PV:
$55,000 = PV * (1 + 0.075)^6
Now, let's isolate PV:
PV = $55,000 / (1 + 0.075)^6
Calculating this equation will give you the lump sum you need to deposit today to fully pay for your wedding in 6 years.
PV = $55,000 / (1.075)^6
By plugging the numbers into a calculator, the result is:
PV = $36,957.47 (rounded to the nearest cent)
Therefore, you would need to deposit approximately $36,957.47 in one lump sum today to fully pay for your wedding in 6 years if you earn a 7.5% annual interest rate on your investment.