Question

Miranda wants to give her 14-years old daughter $20,000 when she turns 18. How much does she need to put in the bank now if the interest rate is 10 percent per year?

Answer 1

Miranda has to put $13,661 in the bank.

Explanation:

Miranda wants to give her 14-years old daughter $20,000 when she turns 18

Miranda has 4 years to make $20,000

Rate of interest = 10% per year

Let initial deposit be $x

Final amount (A) = $20,000

Time (t) = 4 years

Rate (r) = 0.10

Formula:

`A=P(1+r)^n`

Substitute the values into formula

`20000\geq x(1+0.1)^4`

Now we solve for x

`x\geq (20000)/(1.1^4)=13660.27\approx 13661`

Hence, Miranda has to put $13,661 in the bank.