Your brother, who is 6 years old, just received a trust fund that will be worth $25,000 when he is 21 years old. If the fund earns 10 percent interest compounded annually, what is the value of the fund today?

A) $104,602
B) $6,575
C) $5,975
D) $6,875

Question

Bradley Pietz · Accepted Answer

Final Answer : C, Explanation :  We can use the formula for compounding interest, which is A = P(1+r/n)^(nt), where A is the ending amount, P is the beginning principal, r is the interest rate, n is the number of times the interest is compounded per year, and t is the number of years.Plugging in the values, we have P = 0 (since we want to find the present value), A = 25,000, r = 0.10, n = 1, and t = 15 (since the brother is currently 6 years old and the money will be received at 21).So, A = P(1+r/n)^(nt) becomes 25,000 = P(1+0.10/1)^(1*15), which simplifies to 25,000 = P(2.594).Solving for P, we get P = 25,000/2.594, which is approximately $9,652. Therefore, the value of the fund today is approximately $9,652. The closest answer choice to this is C, $5,975.

Your brother, who is 6 years old, just received a trust fund that will be worth $25,000 when he is 21 years old. If the fund earns 10 percent interest compounded annually, what is the value of the fund today?

A) $104,602
B) $6,575
C) $5,975
D) $6,875

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Your brother, who is 6 years old, just received a trust fund that will be worth $25,000 when he is 21 years old. If the fund earns 10 percent interest compounded annually, what is the value of the fund today?A) $104,602B) $6,575C) $5,975D) $6,875

Definitions

Learning Objectives

Learning Objectives

Related questions

Your brother, who is 6 years old, just received a trust fund that will be worth $25,000 when he is 21 years old. If the fund earns 10 percent interest compounded annually, what is the value of the fund today?

A) $104,602
B) $6,575
C) $5,975
D) $6,875