Question

Attucks college predicts that in 14 years it will take $250,000 to attend the college for four years. madison has a substantial amount of cash and wishes to invest a lump sum of money for her child’s college fund. how much should madison put aside in an account with an apr of 8% compounded monthly in order to have $250,000 in the account in 14 years? round your answer to the nearest cent, if necessary.

Answer 1

Madison should use the present value formula for compound interest to determine how much to invest today in an account with an 8% APR compounded monthly to have $250,000 in 14 years, rounding to the nearest cent.

Step-by-step explanation:

To calculate how much Madison should put aside today to have $250,000 in her child's college fund in 14 years with an APR of 8% compounded monthly, we use the formula for the present value (PV) of a future sum in the context of compound interest:

PV = FV / (1 + r/n)nt

Where:

• FV is the future value of the money ($250,000),
• r is the annual interest rate (8% or 0.08),
• n is the number of times that interest is compounded per year (12 for monthly),
• t is the time in years the money is invested for (14 years).

Plugging in the numbers we get:

PV = $250,000 / (1 + 0.08/12)12*14

After calculating the above expression, we round the result to the nearest cent to find out the lump sum Madison needs to invest today. It's important to apply the compound interest formula accurately to determine the correct investment amount.