Question

Jim and Dianna want to save for their child’s college expenses. They find an annuity that pays 6% annual interest, compounded monthly.
If they invest in this annuity by contributing $300 per month for 10 years, how much money will they have for the college expenses?

Answer 1

Answer:

future value = $49163.8

so required amount will be $491200 nearest $100

Step-by-step explanation:

given data

annual interest rate = 6 %

annuity = $300 per month

time period = 10 years

to find out

how much money will they have for the college expenses

solution

we know that effective rate will be

effective rate = $\frac{0.06}{12}$

effective rate = 5 × $10^{-3}$

number of payment = 12 × 10 = 120

so future value will be express as

future value = annuity × $\frac{(1+r)^t-1}{r}$   .........1

future value = 300 × $\frac{(1+5*10^{-3})^{120}-1}{5*10^{-3}}$

future value = 300 × 163.8793  

future value = $49163.8

so required amount will be $491200 nearest $100