Use the following information for questions nine and ten. You would like to purchase a new car that costs $10,000 today. You are planning on borrowing money to purchase the car but don't quite have the money currently to pay for the 20% down payment.
(A down payment is the amount that the lender requires the borrower to pay up front to show that the borrower is financially committed to the asset underlying the loan, which is a car in this case. If the down payment is 20%, then the borrower pays 20% of the total purchase price, which is $10,000 here, when the purchase happens and borrows the remaining 80%.)
Now, assume that the car's price has inflation equal to 4% compounded annually. How much must be deposited today in an account earning 6% compounded annually to accumulate what is needed for the down payment in exactly one year?