Question 434253: Natasha recently had a baby girl and wants to place her baby shower money into an account that earns 8% enterest monthly. She needs $80,000 in this account to pay for her daughters college in 18 years. How much money would she need to put into this account now, in order to have that $80,000 in 18 years?
Answer by htmentor(1343)   (Show Source):
You can put this solution on YOUR website! Surely you must mean 8% interest ANNUALLY, not MONTHLY!
Assuming it's 8% interest compounded annually, we can write the following formula:
where P0 is the inital principal, P is the present value, r is the annual interest rate, and n is the period in years.
In this problem, P = 80000, r = 0.08, and n = 18
So we can write 
Solve for P0:
So the initial investment was $20020
---------------------------------------------
If the 8% annual interest is compounded monthly, then the rate would be r=0.08/12 and n=18*12
In that case, the initial investment would be:
 = $19045
|
|
|
