Question

Assume the total cost of a college education will be $245,000 when your child enters college in 15 years. You presently have $108,000 to invest for this purpose. What rate of interest must you earn to cover the cost of your child's college education

Answer 1

Answer:

8.45%

Explanation:

The formula to calculate the rate of interest is:

r = (1/t)(A/P - 1), where

r= Rate of interest

t= Time period: 15 years

A= Accrued amount: 245,000

P= Principal amount: 108,000

Now, you can replace the values to find the rate of interest:

r= (1/15)((245,000/108,000)-1)

r= (0.0667)(2.2685-1)

r= (0.0667)(1.268)

r= 0.0845 → 8.45%

According to this, the answer is that the rate of interst that you must earn to cover the cost of you child's college education is 8.45%.