How much is going to be paid into the fund?

Question

A trust fund is being set up by a single payment so that at the end of 15 years there will be $75,000 in the fund. If the interest is at an annual rate of 4.03% compounded quarterly, how much money should be paid into the fund?

Answer 1

This is a standard interest problem, using the formula F=P(1+r/n)^tn

 

You might see this with different letters, but it's the same equation.  Here's what the variables mean:

 

F=Future amount, sometimes called A

P=Present amount

r = interest rate, sometimes called i, must be in decimal form (5%=.05)

n=number of compounding periods

t=number of years later

 

Plugging in your data you have:

 

• 75,000=P(1+.0403/4)^4*15 ~ You'll need a calculator to simplify this
• 75,000=1.825P
• P=41,100.20 (divide by the 1.825, and it's always best to give monetary answers with two decimals, though the answer is roughly $41,100.