At Ava's second birthday,her grandparents wanted to pool their money to buy tax-free municipal bonds that would ultimately provide $100,000 for college expenses in 16 years.If calculating a gain of 4% interest,what dollar amount in municipal bonds will they need to buy on Ava's second birthday,assuming all interest was re-invested ?
A)$32,035
B)$64,069
C)$53,391
D)$120,000

Question

Quizplus · Accepted Answer

To find the initial investment needed to grow to $100,000 in 16 years at a 4% annual interest rate, we use the formula for compound interest: P = A / (1 + r)^n, where P is the principal amount (initial investment), A is the amount of money accumulated after n years, including interest, r is the annual interest rate (decimal), and n is the number of years. Substituting A = $100,000, r = 0.04, and n = 16, we solve for P, which gives us approximately $53,391.

At Ava's Second Birthday,her Grandparents Wanted to Pool Their Money