Question

mark and kate are establsihing a fund for their son's college education. what lump sum must they deposit in an account that gives 5% annual interest rate, compounded monthly, in order for them to have $85,000 in the fund at the end of the 10 years

Answer 1

Answer:

$51,608.69

Explanation:

Given that

Interest rate = 5%

Future value = $85,000

Time period = 10 years

So by considering the above information, the Present value is

= Future value ÷ (1 + interest rate)^time period

where,

Future value = $85,000

Interest rate = 5% ÷ 12 months = 0.4166%

Time period = 10 years × 12 months = 120 months

Now the present value is

= $85,000 ÷ (1 + 0.4166%)^120

= $51,608.69