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?

Question

Catherine Strong

Business

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?

+2

Answers (1)

Know the Answer?

Maci Sampson · Answer 1

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