Question

Following the birth of a​ child, a parent wants to make an initial investment Upper P 0 that will grow to ​$70 comma 000 for the​ child's education at age 17. Interest is compounded continuously at 6​%. What should the initial investment​ be? Such an amount is called the present value of ​$70 comma 000 due 17 years from now.

Answer 1

Answer: The initial investment would be Rs. 25243.41.

Explanation:

Since we have given that

Amount = $70000

Rate of interest = 6%

Time period = 17 years

So, we need to find the initial investment.

Using "compound interest continuously", we get that :

`FV=PVe^(i* t)\\\\70000=PVe^(0.06* 17)\\\\70000=PVe^(1.02)\\\\70000=PV* 2.773\\(70000)/(2.773)=PV\\\\25243.41=PV`

Hence, the initial investment would be Rs. 25243.41.