Amelia just inherited a sizable amount of cash. She plans to begin graduate school in 4 years and she expects the total cost of tuition to be $50,000. Amelia wants to put some of her inheritance into a savings account that has an annual interest rate of 5% compounded quarterly. How much money should she invest in this account now to ensure that she will have enough to cover her tuition? (ie: What is the "present value" of this investment?)
Added by Michelle A.
Step 1
We can use the formula for compound interest: FV = PV * (1 + r/n)^(nt) Where: FV = future value PV = present value (the amount Amelia needs to invest now) r = annual interest rate (5% or 0.05) n = number of times the interest is compounded per year (4 for Show more…
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