Sam Long anticipates he will need approximately $225,000 in 15 years to cover his 3-year-old daughter’s college bills for a 4-year degree.How much would he have to invest today at an interest rate of 8 percent compounded semiannually?

Answer 1

P = Po(1+r)^n = $225,000

r = (8%/2)/100% = 0.04 = Semi-annual % rate expressed as a decimal.

n = 2Comp./yr * 15yrs = 30 Compounding
periods.

Po*(1.04)^30 = 225,000
Po = 225,000/1.04^30 = $69,371.70