Question

Following the birth of a​ child, a parent wants to make an initial investment Upper P 0 that will grow to ​$50,000 for the​ child's education at age 19. Interest is compounded continuously at 7​%.
What should the initial investment​ be? Such an amount is called the present value of ​$50,000 due 19 years from now.

Answer 1

Present value PV = 50,000·e^{-0.07·19} = 50,000·e^{-1.33} ≈ 50,000·0.26454 ≈ $13,227.

So the parent should invest about $13,227 now.