Paul and Sophia need $40,000 for a down payment on a house in 3 years. How much should they invest in a savings account now so that they will be able to do this? The bank pays 8% compounded quarterly.
We need to solve this equation for "A"....this will be the invested amount
40,000 = A ( 1 + .08/4)^(3 * 4) simplify
40,000 = A (1.02)^12 divide both sides by (1.02)^12
40,000 / [ 1.02 ]^12 = A = about $ 31539.73
