Question

Ann and Tom want to establish a fund for their grandson's education. what lump sum must they deposit at a 7% annual interest rate, compounded quarterly, in order to have $60,000 in the fund at the end of 10 years? they should deposit $_________ (round up to the nearest cent).

Answer 1

Ann and Tom want to establish a fund for their grandson's education. what lump sum must they deposit at a 7% annual interest rate, compounded quarterly, in order to have $60,000 in the fund at the end of 10 years?



they should deposit $_________ (round up to the nearest cent).

Remember that

The compound interest formula is equal to

`A=P(1+(r)/(n))^(nt)`

where

A is the Final Investment Value

P is the Principal amount of money to be invested

r is the rate of interest in decimal

t is Number of Time Periods

n is the number of times interest is compounded per year

in this problem we have

A=$60,000

r=7%=7/100=0.07

t=10 years

n=4

substitute in the given formula and solve for P

`60,000=P(1+(0.07)/(4))^(4\cdot10)`

solve for P

`\begin{gathered} 60,000=P(1.0175)^(40) \\ \end{gathered}`

P=$29,976.06