Question

Ann and Tom want to establish a fund for their​ grandson's college education. What lump sum must they deposit at an 8.2​% annual interest​ rate, compounded annually, in order to have ​$20,000 in the fund at the end of 15​years?

Answer 1

Compound interest formula = a=P(1+r/n)^nt

P= lump sum to deposit (solving for)

A= amount accumulated over the entire time (20000)

n= number of times interest is compounded annually (1)

r= rate of interest (0.82)

T= total number of years (15)

20000=P(1+0.082/1)^1*15

20000=P(1.082)^15
20000=P(3.26143638)
20000/3.26143638=P
P=$6132.2674

Answer 2

Compound interest formula = a=P(1+r/n)^nt

P= lump sum to deposit (solving for)

A= amount accumulated over the entire time (20000)

n= number of times interest is compounded annually (1)

r= rate of interest (0.82)

T= total number of years (15)

20000=P(1+0.082/1)^1*15

20000=P(1.082)^15
20000=P(3.26143638)
20000/3.26143638=P
P=$6132.2674