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seropon [69]
3 years ago
7

mark and kate are establsihing a fund for their son's college education. what lump sum must they deposit in an account that give

s 5% annual interest rate, compounded monthly, in order for them to have $85,000 in the fund at the end of the 10 years
Business
1 answer:
Elan Coil [88]3 years ago
8 0

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

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We calculate the advances form the customer to be reported as the current liability as on Dec. 31, 2009 in the balance sheet as follows :

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