Question

Your cousin is currently 11 years old. She will be going to college in 7 years. Your aunt and uncle would like to have $ 95 comma 000 in a savings account to fund her education at that time. If the account promises to pay a fixed interest rate of 3.9 % per​ year, how much money do they need to put into the account today to ensure that they will have $ 95 comma 000 in 7 ​years?

Answer 1

Answer:

$72,679.976

Explanation:

The computation of present value is shown below:-

Present value = Future value ÷ (1 + Rate of return)^Number of years

= $95,000 ÷ (1 + 3.9%)^7

= $95,000 ÷ (1 + 0.039)^7

= $95,000 ÷ (1.039)^7

= $95,000 ÷ 1.307100055

= $72,679.97553

or

= $72,679.976

Therefore for computing the present value we simply applied the above formula.