Question

Parents wish to have 100,000 available for a child's education If the child is now 5 years old, how much money must be set aside at 8% compounded semiannual y to meet their financial goal when the child is 18?

Answer 1

A = P (1 + r/n)^t

A = 100,000

r = 8% = 0.08

compounded semiannual so, n = 2

t = (18 - 5) = 13 years

And for semiannual , t = 13 * 2 = 26

so,

100,000 = P * ( 1 + 0.08/2)^26

100,000 = P * ( 1 + 0.04)^26

100,000 = P * 2.77247

P = 100,000/2.77247 = 36,068.92

So, the amount of money to the nearest dollar = $36,069