Daiyu's parents have decided to save for her college education. They estimate they will need $100,000 18 years from now to pay for it. If the interest rate remains fixed at 5% over this period, how much money will Daiyu's parents have to put into savings today to meet their goal (assuming no more money is saved over the years)?

Question

Quizplus · Accepted Answer

To find out how much Daiyu's parents need to save today, we use the formula for the present value of a single future amount: $PV = \frac{FV}{(1 + r)^n}$, where $PV$ is the present value (the amount they need to save today), $FV$ is the future value ($100,000), $r$ is the annual interest rate (5% or 0.05), and $n$ is the number of years (18). Plugging in the numbers: $PV = \frac{100,000}{(1 + 0.05)^{18}}$, which calculates to approximately $41,552.07.

Daiyu's Parents Have Decided to Save for Her College Education