Mary's daughter will begin attending college ten years from now. Mary estimates that the total cost of her education at that time (tuition, room & board, etc.) will be $150,000 for four years of college. She is trying to figure out how much to set aside right now (Mary recently received a large inheritance) so that $150,000 will be available ten years from now. Mary can make a low risk investment which will provide a 6% annual return.

To solve this, use the present value table on p. 827. Find the factor associated with ten years at an interest rate of 6%. You should find that this factor = .56.

Now multiply .56 x $150,000 = $84,000, which is what Mary should set aside right now. This amount should grow to $150,000 over the next ten years at the assumed interest rate of 6%.