A grandmother is looking for a plan to finance her new grandchild’s college education. She has $25,000 to invest. Search the internet and locate a long-range investment plan, CD, Savings Bond, etc, for the grandmother. The plan is to earn compound interest.
Calculate the future value of the investment. You must use the advertised interest rate, the number of compounding periods per year, and the time the funds will be invested. If you are not given the number of compounding periods a year, make it up.
•The principal is $25,000. This is P.
To find a long-range investment plan, CD, savings bond, etc., for the grandmother, we can start by searching the internet for options that offer compound interest. Some common options for long-term investments with compound interest include certificates of deposit (CDs), government bonds, and index funds.
Once you have chosen a specific investment option, you will need to consider the advertised interest rate, the number of compounding periods per year, and the time the funds will be invested.
For example, let's say you choose a 5-year CD with a 2% annual interest rate and compounding done annually. In this case:
Principal (P) = $25,000
Interest rate (r) = 2% or 0.02 (decimal form)
Number of compounding periods per year (n) = 1 (since compounding is done annually)
Time the funds will be invested (t) = 5 years
To calculate the future value of the investment, you can use the compound interest formula:
FV = P * (1 + r/n)^(n*t)
Plugging in the values, the formula becomes:
FV = $25,000 * (1 + 0.02/1)^(1*5)
Simplifying the equation further:
FV = $25,000 * (1 + 0.02)^5
FV = $25,000 * (1.02)^5
FV ≈ $25,000 * 1.10408
FV ≈ $27,602
So, the future value of the investment after 5 years would be approximately $27,602.
It's important to note that the specific interest rates, compounding periods, and investment options might vary. Make sure to research the options thoroughly and consult with a financial advisor to find the best investment plan for the grandmother's needs and goals.