Question
Having received a large inheritance, Jing-mei's parents wish to establish a trust for her college education. Seven years from now they need an estimated $140,000. How much should they set aside in trust now if they invest the money at 6.3%/year compounded quarterly?
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Answer to a math question Having received a large inheritance, Jing-mei's parents wish to establish a trust for her college education. Seven years from now they need an estimated $140,000. How much should they set aside in trust now if they invest the money at 6.3%/year compounded quarterly?
Neal
4.595 Answers
1. Use the compound interest formula for present value:
P = \frac{F}{(1 + \frac{r}{n})^{nt}}
where:
F = \$140,000
r = 0.063
n = 4
t = 7
2. Plug in these values:
P = \frac{\$140,000}{\left(1 + \frac{0.063}{4}\right)^{4 \times 7}}
3. Calculate:
\frac{0.063}{4} = 0.01575
1 + 0.01575 = 1.01575
4 \times 7 = 28
(1.01575)^{28} = 1.54730887981
4. Now calculate the present value:
P=\frac{\$140,000}{1.54730887981}\approx\$90,385.08
5. Therefore, the amount to set aside is approximately:
\$90,385.08
where:
2. Plug in these values:
3. Calculate:
4. Now calculate the present value:
5. Therefore, the amount to set aside is approximately:
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