Question

Jamie Juarez needs $12,000\$ 12,000 in 100 years for her daughter's college education. How much must be invested today at 2%2 \% annual interest compounded semiannully to have the needed funds?

Solution

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Answered 1 year ago
Answered 1 year ago
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We first solve for unknown variables using the given.

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

Periodic Interest Rate=Annual Interest RateNumber of Interests Period per Year =2%2=1%\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\$1.00 we identify the present value of $1.00

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

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