Grandparents of a new-born child want to invest money in a college fund so that their grandchild will have $50,000 at the age 18. The interest rate at the bank

Question

Grandparents of a new-born child want to invest money in a college fund so that their grandchild will have $50,000 at the age 18. The interest rate at the bank is 4.25%. If the interest was compounded continuously, how much would they have to invest?

Answer 1

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

 

P = Principal

A = Amount payable

r= annual rate 

t= time in years

n= Number of times compounded in a year

Assuming it is compounded once in a year n= 1`

A = P( 1+r /n) ^nt   = 50000 = P ( 1+ 4.5/100)¹⁸

Gives P = $22640

The amount may become less if compounding is done monthly or daily basis