Question

Following the birth of a child, a parent wants to make an initial investment Po that will grow to $50,000 for the child's

education at age 17. Interest is compounded continuously at 5%.
What should the initial investment be? Such an amount is called the present value of $50,000 due 17 years from now.
The present value is about $
(Do not round until the final answer. Then round to two decimal places as needed.)

Answer 1

Explanation:

Continuous Compounding formula:

FV = PV e^(r t) FV = Future Value = $ 50 000

PV = Present Value = initial deposit

i = decimal interest per year = .05

t = years

$ 50 000 = PV e ^(.05 * 17) <===== Solve for PV

$ 50000/ ( e^(.05 * 17) ) = $ 21 370.75