Question

Mr. and Mrs. Tournas know that their son will attend a college, in 14 years, that they estimate to cost approximately $250,000How much should they deposit now if they assume that they can earn 8.5% compounded annually?

Answer 1

Compound interest formula:

`A\text{ = }P(1+i)^n`

where:

A is the final amount, here = $250,000

P is the principal amount

i is the interest rate per year (in decimal form), here = 0.085

n is the number of years invested, here = 14

Replacing into the equation and solving for P, we get:

`250000=P(1+0.085)^(14)`
`(250000)/(1.085^(14))=P`

P = $79,785.5