Saving for college in 20 years, a father wants to accumulate $40,000 to pay for his daughter's college expenses. If he can 6% interest, compounded quarterly, how much must he invest now to achieve his goal?

Ava-May Nelson

Ava-May Nelson

Answered question

2020-10-26

Saving for college in 20 years, a father wants to accumulate $40,000 to pay for his daughters

Answer & Explanation

Clara Reese

Clara Reese

Skilled2020-10-27Added 120 answers

If P dollars are deposited in an account eqarning interest at an annual rate r, compounded n times each year, the amount A in the account after t years is given by
A=P(1+rn)nt
A=$40,000
r=6%=0.06
t=20 years
n=4(Compounded quarterly)
Thus,
40000=P(1+0.064)4(20)
40000=P(1+0.015)80
40000=P(1.015)80
40000=P(3.2906)
Divide both sides by 3.2906
P=12155.61
Final statement:
The initial deposit is $12155.61.
Jeffrey Jordon

Jeffrey Jordon

Expert2021-11-03Added 2605 answers

Answer is given below (on video)

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