Elaine has just received an insurance settlement of $25,000. She wants to save this money until her daughter goes to college. If she can earn an average of 6.5 percent, compounded annually, how much will she have saved when her daughter enters college 8 years from now?

Question

Quizplus · Accepted Answer

We can use the formula for compound interest:

A = P(1 + r/n)^(nt)

Where:

A = amount after time t
P = principal amount (initial investment)
r = annual interest rate (as a decimal)
n = number of times the interest is compounded per year
t = number of years

In this case, we have:

P = $25,000
r = 6.5% = 0.065
n = 1 (compounded annually)
t = 8 years

So,

A = $25,000(1 + 0.065/1)^(1*8)

A = $41,374.89

Therefore, Elaine will have saved $41,374.89 when her daughter enters college. The closest option to this amount is option C.

Elaine Has Just Received an Insurance Settlement of $25,000