What lump sum do parents need to deposit in an account earning 14%, compounded monthly, so that it will grow to $90,000 for their son’s college fund in 15 years? (Round your answer to the nearest cent.)
$_____
Question
Question
What lump sum do parents need to deposit in an account earning 14%, compounded monthly, so that it will grow to $90,000 for their son’s college fund in 15 years? (Round your answer to the nearest cent.)
$_____
Answer:
$11,149
Step-by-step explanation:
The computation of the amount that need to be deposit is shown below:
Here we have to determine the present value by applying the above formula
Present value = Future value ÷(1+ rate of interest)^number of years
where,
Future value is $90,000
Rate of interest is 14% ÷ 12 = 1.167%
And, the years would be 15 × 12 = 180
Now the present value is
= $90,000 ÷(1+1.167%)^180
= $11,149