Question

Ann and Tom want to establish a fund for their grandson's college education, What lump sum must they deposit at a 10% annual interest rate, compounded monthly, in order to have $20,000 in the fund at the end of 15 years? They should deposit (Round up to the nearest cent)

Answer 1

so deposit amount is $4490.43

Explanation:

Given data

rate = 10% annual = 10/12 % monthly = 10/1200 monthly

amount = $20000

time = 15 years = 15 × 12 month = 180 months

to find out

principal amount

solution

we know the amount formula that is given below

Amount = principal
`( 1 + rate)^(n)`

now put all value amount , rate , time and find the principal

20000 = principal
`( 1 + 10/1200)^(180)`

principal = 20000 /
`( 1 + 10/1200)^(180)`

principal = 20000/ 4.453919

principal = 4490.4274

so deposit amount is $4490.43