Question

Test: PRACTICE TEST for Final Exam (RE...This question: 2 point(s) possibleAnn and Tom want to establish a fund for their grandson's college education. What lump sum must they deposit at a 10% annual interest rate, compounded annually. In order to have $20,000 in the fund at the end of 10 years?They should deposits(Round up to the nearest cent)

Answer 1

They should deposit $7710.99

Step-by-step explanation

Using compound interest formula,

`A=P(1+(r)/(n))^(nt)`

Where:

A = Amount = $20,000

P = Principal = ?

r = Interesr rate = 10% = 0.1

n = 1

t = 10

`\begin{gathered} \Rightarrow20000=P(1+0.1)^(1*10) \\ 20000=P(1.1)^(10) \\ 20000=P(2.5937) \\ \text{Divide both sides by 2.5937} \\ (P\mleft(2.5937\mright))/(2.5937)=(20000)/(2.5937) \\ P=7710.9920 \\ \text{To the nearest cent, the answer is} \\ P=7710.99 \end{gathered}`