Question

Your cousin is currently 12 years old. She will be going to college in 6 years. Your aunt and uncle would like to have $ 120,000 in a savings account to fund her education at that time. If the account promises to pay a fixed interest rate of 4.5 % per​ year, how much money do they need to put into the account today to ensure that they will have $ 120,000 in 6 ​years?

Answer 1

	This can be solved using the Future value = Present value * (1+r)^n
	Future value = $ 120,000/. In 6 years
	Present value = Deposit to be made today = ?
	"r" is rate of interest = 4.50%
	"n" is number of years = 6
	120000=Present value * (1+0.045)^6
	120000=Present value * 1.302260
	Present value is = (120000/1.302260)
	Present value is = $ 92,147.49/.
	Money do they need to put into the account today is $ 92,147/.