At Ava's second birthday, her grandparents wanted to pool their money to buy U. S. Treasury bonds that would ultimately provide $120,000 for college expenses in 16 years. If calculating a gain of 4% interest, what dollar amount in U. S. Treasury bonds will they need to buy on Ava's second birthday?

They would need to buy $64,068.981 in U. S treasury bonds on Ava's second birthday to ultimately provide $120,000 for college expenses in 16 years.

Explanation:

The initial amount to be invested in order to yield $120,000 after 16 years can be expressed as;

F. V=P. V (1+R) ^n

where;

F. V=future value of investment

P. V=present value of investment

R=annual interest rate

n=number of years

In our case;

F. V=$120,000

P. V=unknown

R=4%=4/100=0.04

n=16 years

replacing;

120,000=P. V (1+0.04) ^ (16)

120,000=P. V (1.04) ^16

120,000=1.873 P. V

P. V=120,000/1.873

P. V=$64,068.981

They would need to buy $64,068.981 in U. S treasury bonds on Ava's second birthday to ultimately provide $120,000 for college expenses in 16 years.