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1 February, 06:17

Sam Long anticipates he will need approximately $225,000 in 15 years to cover his 3-year-old daughter's college bills for a 4-year degree. How much would he have to invest today at an interest rate of 8% compounded semiannually?

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  1. 1 February, 06:19
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    The amount of funds to be invested today is $69,371.70

    Explanation:

    The amount to be invested today can be computed using the modified present value formula as shown below:

    Present value=fv * (1+r/2) ^ - (N*2)

    The number 2 is to show that interest is semi - annual

    fv is the amount of funds expected in 15 years of $225,000

    r is the rate of return at 8% annually

    N is the number of years of savings which is 15

    pv=225000 * (1+8%/2) ^ - (15*2)

    =225000 * (1.04) ^-30

    =225000*0.308318668

    pv=$69,371.70
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