Question

A financial planning service offers a college savings program. The plan calls for you to make six annual payments of $13,000 each, with the first payment occurring today, your child’s 12th birthday. Beginning on your child’s 18th birthday, the plan will provide $30,000 per year for four years. What return is this investment offering

Answer 1

Recurring or cumulative type of Investment . Return= $ 120,000.

P (principal) = $ 78,000.00        I (interest) = $ 42,000.  

Interest  rate is 11.37  per cent

Explanation:

Total Investment = $13,000 × 6 = 78,000

$Total Investment = 13,000 × 6 = 78,000$

Total Return value = $30,000 × 4 = 120,000

$Total Return value = 30,000 × 4 = 120,000$

net return from the investment = 120,000 - 78,000 =  42000

$net return from the investment = 120,000 - 78,000 = 42000$

Rate of interest =   $Where: A = P(1 + r/n)nt$

Return= $ 120,000.51

Interest  rate is 11.37  per cent ( annuity method or compound interest)

A = P + I where

P (principal) = $ 78,000.00

I (interest) = $ 42,000.51

Recurring or cumulative type of Investment .