Results 1 to 4 of 4

Math Help - Compouind interest

  1. #1
    Newbie
    Joined
    Mar 2008
    Posts
    20

    Compouind interest

    You being the wise parent invest $25000 for your newborn child's college education. Setting your sights high, you arrive at a figure of $150,000 needed for the education expenses. If you can get a 9% annual rate, compounded monthly, how old will your child be when you will have the funds to send her to college?
    Follow Math Help Forum on Facebook and Google+

  2. #2
    Senior Member
    Joined
    Feb 2008
    From
    Berkeley, Illinois
    Posts
    364
    Quote Originally Posted by tony351 View Post
    You being the wise parent invest $25000 for your newborn child's college education. Setting your sights high, you arrive at a figure of $150,000 needed for the education expenses. If you can get a 9% annual rate, compounded monthly, how old will your child be when you will have the funds to send her to college?
    Since it's monthly compounding, we need to adjust our interest rate. 9% per year is .75% per month

    We have:

    25000 * (1.0075)^n = 150000

    (1.0075)^n = 6

    Take the natural log of both sides:

    n * Ln(1.0075) = Ln(6)

    n = 239.796 months \approx 19.983 years

    Depending on how your answer needs to be, that's exact time. If you need exact years or months, you can do that to.

    To check that, see what happens when you roll up 25,000 for 239.796 months @ .75%/month. That's your check and balance system.
    Last edited by mathceleb; April 2nd 2008 at 12:43 PM.
    Follow Math Help Forum on Facebook and Google+

  3. #3
    Newbie
    Joined
    Mar 2008
    Posts
    20

    Can you explain further

    Did the 1.09 come from adding 1 to the 9% and where did the 6 come from? Dumb question, I know
    Follow Math Help Forum on Facebook and Google+

  4. #4
    Senior Member
    Joined
    Feb 2008
    From
    Berkeley, Illinois
    Posts
    364
    Quote Originally Posted by tony351 View Post
    Did the 1.09 come from adding 1 to the 9% and where did the 6 come from? Dumb question, I know
    I just saw that you had monthly as the basis for interest. I corrected my post above. The 6 = 150000/25000.

    With the correction, 1.0075 = 1 + (.09/12)

    You add 1 because a balance is principal + interest. So P(1 + i) = P + Pi where Pi is the interest on the balance.
    Follow Math Help Forum on Facebook and Google+

Similar Math Help Forum Discussions

  1. Calculate interest rate based on interest in parcels
    Posted in the Business Math Forum
    Replies: 1
    Last Post: February 17th 2011, 09:38 PM
  2. Compound interest at changing interest rates
    Posted in the Business Math Forum
    Replies: 2
    Last Post: October 21st 2010, 04:55 AM
  3. Compouind interest
    Posted in the Business Math Forum
    Replies: 4
    Last Post: April 2nd 2008, 12:04 PM
  4. Interest
    Posted in the Business Math Forum
    Replies: 5
    Last Post: January 17th 2008, 10:21 AM
  5. Replies: 0
    Last Post: March 18th 2007, 01:31 PM

Search Tags


/mathhelpforum @mathhelpforum