Tony Ring wants to attend Northeast College...

Question

Tony Ring wants to attend Northeast College. He will need $60,000 5 years from today. Assume Tony's bank pays 8% interest compounded semiannually.

What must Tony deposit today so he will have $60,000 in 5 years? (Do not round intermediate calculations. Round your answer to the nearest cent.)

Amount to be deposited: ?

Answer 1

Let P = amount deposited today

A(t) = amount in t years

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

r = annual interest rate = 0.08

n = number of compoundings per year

So, 60000 = P(1 + 0.08/2)^10

60000 = P(1.04)^10

P = 60000 / (1.04)^10 = $40,533.85