Question

A financial planning service offers a college savings program. The plan calls for you to make six annual payments of $15,800 each, with the first payment occurring today, your child’s 12th birthday. Beginning on your child’s 18th birthday, the plan will provide $35,000 per year for four years. What return is this investment offering?

Answer 1

Answer:

The financial service requires a total payment of $94,800, distributed in 6 annual payments of $15,800. Once said amount has been paid, the company invests said money and after the course of 6 years, pays 4 annual payments of $35,000, that is, a total payment of $140,000. In this way, after 10 years of the first payment by the client, this operation ends with a monetary gain on the part of the client of $45,200 (140,000 - 94,800).

Now, to know how much interest is being offered by this investment, we must perform the following cross multiplication:

94,800 = 100

45,200 = X

(45,200 x 100) / 94,800 = X

4,520,000 / 94,800 = X

47.67 = X

As we can see, this operation offers a return of 47.67% in interests.