Homework Help

Mr. and Mrs. Castro want to prepare for their 12 year old son's college education. If...

user profile pic

spock2 | Student, Undergraduate | Honors

Posted May 21, 2012 at 2:23 AM via web

dislike 1 like

Mr. and Mrs. Castro want to prepare for their 12 year old son's college education. If they invest 4000000 now at 8% compounded semi annually and they need 5000000 when he is 16 yrs old, will they have enough money by then?

2 Answers | Add Yours

user profile pic

justaguide | College Teacher | (Level 2) Distinguished Educator

Posted May 21, 2012 at 2:37 AM (Answer #1)

dislike 2 like

Mr. and Mrs. Castro want to prepare for their 12 year old son's college education and require $5,000,000 when he is 16.

If 4,000,000 is invested now at 8% compounded semi-annually after 4 years it will increase to:

`4000000*(1+0.04)^8 = 5474276.2`

The Castros will have enough for their son's college with the amount invested.

user profile pic

najm1947 | Elementary School Teacher | Valedictorian

Posted May 21, 2012 at 2:41 AM (Answer #2)

dislike 0 like

Age of the son now = 12 year

Age of the son when he goes to college = 16 years

Time available to prepare = 16-12 = 4 years

Amount invested = x = 4,000,000

Rate of interest = r = 8%

Investment Period = t = 4 years

Amount after 4 years = x(1+r)^t

= 4000000*(1+0.8)^4

= 5,441,956

The amount required for college education is 5,000,000 whereas the investment of 4,000,000 after four years will be 5,441,956 so:

Mr. and Mrs. Castro will have enough money for college by the time their son is 16 years.

Join to answer this question

Join a community of thousands of dedicated teachers and students.

Join eNotes