Question

Let's say my name is Frank Zappa and my daughter Moon Unit Zappa was just born. I think her college education will cost me $80,000, 18 years from now. Who can tell me how much money I need to sock away right now to have $80,000 18 years from now if I expect to earn 9% on the money I invest today? Show your calculations

Answer 1

The Amount of Money you need to invest today will be the Present Value of $80,000 discounted at 9% for 18 Years

Present Value = Future Value x Present Value Factor

= $80,000 x [PVIF 9%, 18 Years]

= $80,000 x [ 1 / (1 + r)ⁿ]

= $80,000 x [ 1 / (1 + 0.09)¹⁸]

= $80,000 x [ 1 / 4.7171204]

= $80,000 x 0.2119937

= $16,959.50

- The Amount of Money you need to invest today is equal to $16,959.50.

- It means that if you invest $16,959.50 for 18 years at the interest rate of 9%, You will have $80,000 at the end of 18 Years