3. You would like to have $200,000 in a college fund in 15 years. How much do you need today if you expect to earn 12% while you are investing to pay for your child’s college?

Answer 1

Let's say the amount to invest today is x.

The future value formula for a current investment of x, rate of return r and number of years t is x*(1+r)^t.

Here with a return of 12% (assuming this is annual) the amount you will have after 15 years is

x * (1 + 0.12)^15. We need this amount to be 200,000.

Thus the amount to invest today is x = 200,000 / (1 + 0.12)^15