Problem

Maria wants to have $\$ 30,000.00$ in 15 years when her daughter is ready to start college. How much should she invest today in a Certificate of Deposit (CD) that earns $3.375 \%$ interest compounded quarterly? Round your final answer up to the nearest dollar. Assume the interest rate does not change while the account is open. Principal

Solution

Step 1 :Given that Maria wants to have $30,000 in 15 years, the interest rate is 3.375% compounded quarterly. We need to find out how much she should invest today.

Step 2 :We use the formula for compound interest: \(P = \frac{A} {(1 + \frac{r}{n})^{nt}}\), where P is the principal amount (the initial amount of money), A is the amount of money accumulated after n years, including interest, r is the annual interest rate (in decimal), n is the number of times that interest is compounded per year, and t is the time the money is invested for in years.

Step 3 :Substitute the given values into the formula: A = 30000, r = 0.03375, n = 4, t = 15.

Step 4 :Solving the equation gives P = 18121.

Step 5 :Final Answer: Maria should invest \(\boxed{\$18121}\) today in a Certificate of Deposit (CD) that earns 3.375% interest compounded quarterly to have $30,000 in 15 years.

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Source: https://solvelyapp.com/problems/43703/

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