You want to save for your newborn child’s college education. You can invest in a tax...
You want to save for your newborn child’s college education. You can invest in a tax free bond which pay 7% annual interest rate, compounded continuously. How much should you invest (principle) today so that you will have $100,000 in 18 years?
Homework Answers
We use the formula:
A=P(e)^rn
where
A=future value
P=present value
r=rate of interest
n=time period.
e=2.71828
100,000=P*(2.71828)^(0.07*18)
P=100,000/(2.71828)^(0.07*18)
=100,000*0.283654267
=$28365.43(Approx)
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