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?
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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.
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
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.
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