Question

Ann and Tom want to establish a fund for their​ grandson's college education. What lump sum must they deposit at 12 ​% annual interest​ rate, compounded quarterly ​, in order to have ​20,000$ in the fund at the end of 10 ​years?

Answer 1

The principal amount that must be deposited as a lump sum amount is = $16,666.7

Calculation of principal amount

The simple interest amount = $20,000

The interest rate = 12%

The time that is given= 10 years

Therefore the principle amount =?

Using the simple interest formula;

SI= P×T×R/100

Make P the subject of formula,

P = SI ×100/T×R

P= 20,000×100/10×12

P= 2,000,000/120

P= $16,666.7

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