Answer to Question #134424 in Financial Math for Aishworjo Rahman

Question

A father wants to be accumulated $25000 for his son's college education. The son will admit to a college after 15 years from now. The bank pays 12% interest compounded quarterly, how much money should be deposited now in the bank by the father?

Answer 1

Compound interest formula is A= P(1+r/n)^nt

Where; A= Accumulated/final amount

P= Principal/initial amount

r= interest rate

n= number of times the interest is compounded per period

t= number of periods lapsed

To calculate the initial amount (P); make P the subject of the formula P= A/(1+r/n)^nt

Then substitute the figures as follows :

A=$25000

r= 12%

n=4

t= 15

Therefore; P= 25000/(1+0.03)⁶⁰

P= 4,243.32

The amount the father should deposit is $ 4,243.32