Question

Molly Scupper wants to attend Clarke University. She will need $90,000 6 years from today. Assume Molly's bank pays 6% interest compounded quarterly. What must Molly deposit today to have $90,000 in six years? Verify your answer.

Answer 1

This is similar to exponential growth problems...

F=Ir^t F=final, I=initial, r=rate, t=time,

The main difference here is that the annual rate is compounded quarterly so

90000=I(1+.06/4)^(4t)

90000=I(1.015)^(4t) and since t=6 we have:

90000=I(1.015^24)

I=$62,958.95

verify...

F=62958.95(1.015^24)

F=$89999.996

F=$90000.00 rounded to nearest cent