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 $39,000 when the child reaches
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Question 1202014: 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 $39,000 when the child reaches the age of 18? Assume the money earns 9% interest, compounded quarterly. (Round your answer to two decimal places.) Answer by ikleyn(52794) (Show Source):
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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 $39,000 when the child reaches the age of 18?
Assume the money earns 9% interest, compounded quarterly.
(Round your answer to two decimal places.)
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Use the formula for discretely compounded account
f = p * (1 + r) ^ n
where f is the future value
p is the principal (the deposited amount)
r is the interest rate per time period, presented as a decimal
n is the number of time periods.
Your time periods are quarters.
f = 39000 dollars.
r = 0.09/4.
n = 18 years * 4 = 72 quarters.
Formula becomes 39000 = , which gives
p = = 7857.89 to the nearest cent. ANSWER
Solved.
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To see many other similar (and different) solved problems on compounded interest accounts, look into the lesson
- Compounded interest percentage problems
in this site.
