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Question

Jamie Juarez needs $\$ 12,000$ in 1$0$ years for her daughter's college education. How much must be invested today at $2 \%$ annual interest compounded semiannully to have the needed funds?

Solution

VerifiedAnswered 1 year ago

Answered 1 year ago

Step 1

1 of 2We first solve for unknown variables using the given.

$\begin{aligned} \text{Interest Periods} &=\text{Number of Years} \times \text{Number of Interests Period per Year}\\ &=10(2)\\ &=20 \end{aligned}$

$\begin{aligned} \text{Periodic Interest Rate} &=\frac{\text{Annual Interest Rate}}{\text{Number of Interests Period per Year}} \\\ & =\frac{2\%}{2}\\ &=1\% \end{aligned}$

Using Table for Present Value of $\$1.00$ we identify the present value of $1.00

- Present Value of $\$1.00$ $=0.81954$

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