You setup an educational savings plan that will pay $15,000 to your newborn child in 18 years. If the plan uses a rate of 4.75% per year, what was contributed into this plan?

A) $4,459
B) $5,800
C) $6,506
D) $7,007
E) $8,576

Question

Daniela Campos · Accepted Answer

Final Answer : C, Explanation :   To find the initial contribution for a future value in an educational savings plan, we use the formula for the present value of a single sum, which is   P V = F V ( 1 + r ) n PV = \frac{FV}{(1 + r)^n} P V = ( 1 + r ) n F V ​  , where   P V PV P V   is the present value or initial contribution,   F V FV F V   is the future value,   r r r   is the annual interest rate, and   n n n   is the number of years. Plugging in the given values:   P V = 15 , 000 ( 1 + 0.0475 ) 18 PV = \frac{15,000}{(1 + 0.0475)^{18}} P V = ( 1 + 0.0475 ) 18 15 , 000 ​  , calculating this gives a present value of approximately $6,506, which is the amount contributed into the plan.

You setup an educational savings plan that will pay $15,000 to your newborn child in 18 years. If the plan uses a rate of 4.75% per year, what was contributed into this plan?

A) $4,459
B) $5,800
C) $6,506
D) $7,007
E) $8,576

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You setup an educational savings plan that will pay $15,000 to your newborn child in 18 years. If the plan uses a rate of 4.75% per year, what was contributed into this plan?A) $4,459B) $5,800C) $6,506D) $7,007E) $8,576

Definitions

Learning Objectives

Learning Objectives

Related questions

You setup an educational savings plan that will pay $15,000 to your newborn child in 18 years. If the plan uses a rate of 4.75% per year, what was contributed into this plan?

A) $4,459
B) $5,800
C) $6,506
D) $7,007
E) $8,576