Ann and Tom want to establish a fund for their grandson's education. what lump sum must they deposit at a 7% annual interest rate, compounded quarterly, in order to have $60,000 in the fund at the end of 10 years?
they should deposit $_________ (round up to the nearest cent).
Remember that
The compound interest formula is equal to
[tex]A=P(1+\frac{r}{n})^{nt}[/tex]where
A is the Final Investment Value
P is the Principal amount of money to be invested
r is the rate of interest in decimal
t is Number of Time Periods
n is the number of times interest is compounded per year
in this problem we have
A=$60,000
r=7%=7/100=0.07
t=10 years
n=4
substitute in the given formula and solve for P
[tex]60,000=P(1+\frac{0.07}{4})^{4\cdot10}[/tex]solve for P
[tex]\begin{gathered} 60,000=P(1.0175)^{40} \\ \end{gathered}[/tex]