Tishie invests $3,000 today at a 9% rate of return. She wants to have $24,000 to give to her granddaughter Kathy for college 16 years from now. Which one of the following statements is correct concerning Tishie's situation?
A) Tishie will have the $24,000 when she wants it.
B) Tishie would have to wait an additional ten years to have $24,000.
C) Tishie would have to earn a 10% rate of return to have $24,000 in 16 years.
D) Tishie will only have approximately $12,000 sixteen years from now.
E) Tishie should plan on only giving Kathy $10,000 in sixteen years.

Question

Quizplus · Accepted Answer

To determine the future value of Tishie's investment, we use the future value formula: FV = PV(1 + r)^n, where FV is the future value, PV is the present value ($3,000), r is the annual interest rate (9% or 0.09), and n is the number of years (16). Plugging in the values, we get FV = $3,000(1 + 0.09)^16, which calculates to approximately $12,000, indicating that Tishie will only have about $12,000 sixteen years from now.

Tishie Invests $3,000 Today at a 9% Rate of Return