Question

Mia Kaminsky wants to attend Riverside Community College. She will need to have $25,000 six years from today. Mia is wondering what she will have to put in the bank today so that she will have $25,000 six years from now. Her bank pays 6% compounded semiannually. Using the tables in the handbook, the amount Mia will have to deposit is:

Answer 1

$17,534.50

Step-by-step explanation:

F = P(1 + i)^n

F = Future value = $25,000

P = Present value = unknown

i = 6% compounded semiannually; This means 6/100/2 per compounding period

n = number of compounding periods = 12 (2 periods per year for 6 years)

25,000 = P(1 + 6/100/2)^12

You are solving for P

25,000 = P(1 + 0.03)^12

25,000 = P(1.03)^12

25,000 = P(1.42576)

P = 25,000/1.42576

P = $17,534.50

Therefore the amount Mia will have to deposit is $17,534.50