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The parents must set aside $57,210.9656 as initial investment , at 5% compounded semiannually to meet their financial goal when the child is 18.
Parents wish to have $120,000 available for a child's education.
The child is 3 years old now.
We need to find how much money must be set aside at 5% compounded semiannually to meet the final goal when the child is 18.
: The compound interest formula: A = p*(1+r/n)^nt; where
A = Accumulated amt after t time
P = Initial amt
r = rate of interest in decimal form
n = number of time compounded each year
t = 15 yrs;
We need to find the initial investment, P
P * (1 + .05/2)^(2*15) = 120000
P * (1.025^30) = 120000
P * 2.0975 = 120000
p = 120000/2.0975
P = $57,210.9656 is the investment required
Therefore, They must set aside $57,210.9656 to meet their financial goal when the child is 18
To learn more about compound interest refer here
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