John plans to buy a vacation home in 10 years from now and w

John plans to buy a vacation home in 10 years from now and wants to have saved $60,196 for a down payment. How much money should he place today in a saving account that earns 7.90 percent per year (compounded daily) to accumulate money for his down payment?

Solution

We use the formula:
A=P(1+r/365)^365n
where
A=future value
P=present value
r=rate of interest
n=time period.

60,196=P(1+0.079/365)^(365*10)

Hence

P=60,196/(1+0.079/365)^(365*10)

which is equal to

=$27321.98(Approx)(Please note that intermediate calculations have not been rounded off]

[365 days have been assumed in a year].