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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

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Apr 07, 2013
Interest Problem
by: Staff


Answer
Part I

The formula for calculating compound interest is:


The formula for calculating compound interest




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

Substitute known amounts in compound interest formula





Evaluate the parentheses and exponent on the right side of the equation

Evaluate the parentheses and exponent on the right side of the equation





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Apr 07, 2013
Interest Problem
by: Staff


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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.)

Round the value of the decimal to the nearest one-thousandth (three decimal places) to make the arithmetic a little more manageable





Divide each side of the equation by 4.526

Divide each side of the equation by 4.526





Present Value of CD Needed to ensure $40,000 is available 18 years from now:

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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