Question

Mr. And Mrs. Griffin hope to send their daughter to college in fourteen years. How much money should they invest now at an interest rate of 9.5% per year, compounded continuously, in order to be able to contribute $8,500 to her education?

Answer 1

$2,385.75 = P

Explanation:

In order to calculate this we need to use the following compound interest formula and solve for the initial investment amount which is P.

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

A = the future value of the investment/loan, including interest

P = the principal investment amount (the initial deposit or loan amount)

r = the annual interest rate (decimal)

n = the number of times that interest is compounded per unit t

t = the time the money is invested or borrowed for

If we plug in the values provided in the question which is compounded once per year we would get the following equation which we can solve for P.

8500 = P (1 + (0.095/1))^(1*14)

8500 = P (1.095)^(14)

8500 = P (3.56285)

2,385.75 = P

Mr. and Mrs. Griffen need to invest $2,385.75 now for 14 years in order to contribute a total of $8,500