Question

You would like to give your daughter $75,000 towards her college education 17 years from now. how much money must you set aside today for this purpose if you can earn 8 percent annually on your investments

Answer 1

To calculate compound interest, we use this formula: FV = PV x (1 +i)^n, where:

FV represents the future value of the investment
PV represents the present value of the investment
i represents the rate of interest earned each period
n represents the number of periods;

So, 75,000 = PV x (1+0.08)^17;
Then, 75,000 = PV x 3.61;
PV = 75,000 ÷ 3.61;
PV = $20,775.62;