Question

What lump sum do parents need to deposit in an account earning 14%, compounded monthly, so that it will grow to $90,000 for their son's college fund in 15 years? (Round your answer to the nearest cent.)

$_____

Answer 1

$11,149

Explanation:

The computation of the amount that need to be deposit is shown below:

Here we have to determine the present value by applying the above formula

Present value = Future value ÷(1+ rate of interest)^number of years

where,

Future value is $90,000

Rate of interest is 14% ÷ 12 = 1.167%

And, the years would be 15 × 12 = 180

Now the present value is

= $90,000 ÷(1+1.167%)^180

= $11,149