Question

PLEASE HELP ME SOLVE THE QUESTION BELOW

Ann and Tom want to establish a fund for their​ grandson’s college education. What lump sum must they deposit at 12 ​% annual interest​ rate, compounded quarterly ​, in order to have ​20,000$ in the fund at the end of 10 ​years?

Answers

  1. For Ann and Tom to have ​$20,000 at the end of 10 ​years, they must deposit a sum of $6,131.14.

    What is the principal?

    To calculate the sum of money they must deposit, use the compound interest formula.
    From the compound interest formula;
    P = A / ( 1 + r/n )^(nt)
    Given that;
    • Final amount A = 20,000
    • Interest rate r = 12% = 12/100 = 0.12
    • Compound n = quarterly = 4
    • Time t = 10 years
    • Principal P = ?
    P = A / ( 1 + r/n )^(nt)
    P = 20,000 / ( 1 + 0.12/4 )^(4×10)
    P = 20,000 / ( 1.03)^40
    P = 20,000 / 3.26203779
    P = $6,131.14
    Therefore, for Ann and Tom to have ​$20,000 at the end of 10 ​years, they must deposit a sum of $6,131.14.
    Learn more about compound interest here: brainly.com/question/27128740
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