Question

rita promises to give her 12–year–old daughter $12,000 when she turns 18. how much does she need to put in the bank now if the interest rate is 12 percent per year?

Answer 1

We must find fixed payment amount, every period in case we know FV ( future value ) = 12000 and Interest = 10%
We use formula :

FV= A × $\frac{(1+i)^{n} -1 }{i}$

A = fixed payment amount, every period   -----> finding
FV = 12000
i = 0.12
n = tenure years = 18-12 = 6

and we found A = 1478.7