A child’s grandparents wish to purchase a bond fund that matures in 18 years to be used for the grandchild’s college education. The bond fund pays 4% interest compounded semi-annually. How much should they purchase so that the bond fund will be worth 85,000 at maturity?

Solution

A child’s grandparents wish to purchase a bond fund that matures in 18 years to be used for the grandchild’s college education. The bond fund pays 4% interest compounded semi-annually. How much should they purchase so that the bond fund will be worth 85, 000 at maturity?

Solution

Principal : 41668.97

Solution steps

Translate the problem into an equation:

85000 = P (1 + \frac{0.04}{2})^{2 \cdot 18}

Solve for

P, 85000 = P (1 + \frac{0.04}{2})^{2 \cdot 18} : P = 41668.97

Principal : 41668.97

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