Question

If you wish to accumulate $200,000 in a child’s college fund after 18 years, and can invest at a 7.5% annual rate, how much must you invest at the end of each year if the first deposit is made at the end of the first year?

Answer 1

Answer:

$5,605.79

Explanation:

Given that,

Amount of money wish to accumulate in a child’s college fund after 18 years, future value = $200,000

Annual rate of interest, i = 7.5%

Annual payments, t = 18 years

Future value of ordinary annuity = $P(\frac{(1+i)^{t}-1 }{i})$

$200,000=P(\frac{(1+0.075)^{18}-1 }{0.075})$

P = $5,605.7915 or $5,605.79 (Approx)

Hence, payments of $5605.79 needs to be made into the account if $200000 needs to be accumulated.