Question

Asked Oct 20, 2019

Parents wish to have $110,000available for a child's education. If the child is now 99 years old, how much money must be set aside at 4% compounded semiannually to meet their financial goal when the child is 18? The amount that should be set aside is $

Step 1

If P is the amount set aside today, then it's future after year n, in an account offereting annual interest rate of r, compounded m times in a year is given by:

FV_{n} = P x (1 + r / m)^{n x m}

Step 2

In this case, we have to find P when n = 18 - 9 = 9 years; r = 4%; m = 2 and FVn = $ 110,000

Hence, 110,000 = P ...

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