Question

Landon and Wendy have a new grandson. How much money should they invest now so that he will have $58,000 for his college education in 18 years? The money is invested at 7.3% compounded semiannually.

Answer 1

Rate of interest = 7.3/ 2= 3.65% semi annually

Time = 18 years or 18*2 = 36 semi annual

Present value is the present worth of cash that is to be received in the future, if future value is known, rate of interest in r and time is n then PV is

PV = FV/ (1 + r) ^n

Where,

FV = 58000

Let's put all the values in the formula

= 58000/ (1 + 0.0365)^36

= 58000/ (1.0365)^36

= 58000/ 3.6349

= 15956.42

So they need to deposit $15956.42

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Hope that helps.

Feel free to comment if you need further assistance J