How much money should they deposit in an account paying 10.2% so they will have $100,000 in 18 years to pay for their daughter's educational expenses.

Question

They want to put away money for college education now.  How much money should they deposit in an account paying 10.2% so they will have $100,000 in 18 years .

Answer 1

How often is the interest compounded?

 

A = p(1 + r/n)^nt

A = final amount = $100,000

p = principal = to be found

r = interest rate = .102

n = # times compounded per year = ??

t = time in years = 18

 

I will assume the interest is annual, thus n = 1

Note:  If semiannual, n=2

          If quarterly, n = 4

          If monthly, n = 12

 

100,000 = p(1 + .102/1)¹⁽¹⁸⁾

100,000 = p(1.102)¹⁸

 

Solve for p to get the amount for principal investment