# Math Problem - College Savings

Interest Calculation

Grandma wants to establish a college fund.

She wants the account to be worth \$40,000 in 18 years.

She found a CD which offers 8.75% interest compounded annually.

How much must grandma deposit to accomplish her goal?

### Comments for Math Problem - College Savings

 Apr 07, 2013 Interest Problem by: Staff Answer Part I The formula for calculating compound interest is: A = final balance in the CD account P = principle (the initial CD purchase price) r = decimal form of annual interest rate t = time in years For your problem: A = \$40,000 P = unknown r = .0875 (this is the decimal form of 8.75%. It is = 8.75%÷100) t = 18 years substitute the known values into the compound interest formula Evaluate the parentheses and exponent on the right side of the equation ------------------------------------------------------------------

 Apr 07, 2013 Interest Problem by: Staff ------------------------------------------------------------------ Part II Round 4.5261274740564 to the nearest one-thousandth (three decimal places) to make the arithmetic a little more manageable. (Rounding to the nearest one-thousandth will affect the final calculation of the CD purchase required by less than 25 cents.) Divide each side of the equation by 4.526 Present Value of CD Needed to ensure \$40,000 is available 18 years from now: Thanks for writing. Staff www.solving-math-problems.com

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