SOLUTION: A couple plans to save for their child's college education. What principal must be deposited by the parents when their child is born in order to have 42,000 when the child reaches
Question 1158226: A couple plans to save for their child's college education. What principal must be deposited by the parents when their child is born in order to have 42,000 when the child reaches the age of 18? Assume the money earns 9% interest, compounded quarterly. (Round the answer to two decimals.) Answer by Shin123(626) (Show Source): You can put this solution on YOUR website! If P is the amount the couple invests when their baby is born, the money will have accumulated to . We set this value to $42,000. Dividng both sides by , we get . If you don't round until the end, we have . Check:
If P is the principal. r the interest rate in decimal, n the number of times it is compounded per year, and y the number of years that the money is kept, the future value is . Plugging in the numbers, we get . Simplifying, we get ,which can be rounded to dollars.