Question

You want a college fund for your newborn which will be worth 300,000 in 18 years. You purchase a CD with an 18 year maturity at 7%, compounded quarterly. How much did you pay for the CD if it will be worth what you want it to?

Answer 1

Given:

`\text{Amount}=300,000;\text{ r=}7\text{ \% ; }n=4\text{ ; t=18}`
`\text{Amount(A)}=P(1+(r)/(n))^(nt)`
`300000=P(1+(0.07)/(4))^(4*18)`
`300000=P((4.07)/(4))^(4*18)`
`300000=P(1.0175)^(72)`
`P=(300000)/((1.0175)^(72))`
`P=86028.6615`

Therefore , I have to pay 86028.66 .