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Lapatulllka [165]
3 years ago
11

Lucy and Fred want to begin saving for their baby's college education. They estimate that they will need $200,000 in eighteen ye

ars. If they are able to earn 6% per annum, how much must be deposited at the beginning of each of the next eighteen years to fund the education?
Business
1 answer:
ehidna [41]3 years ago
3 0

Answer:

The payment should be of:  $ 6,105

Explanation:

We need to sovle for the annuity-due quota which, generates a 200,000 future value capitalize at 6% per annum:

As this is an annuity due a (1+r) factor is added to the annuity formual to represent this addtional captialziation of the first payment.

PV \div \frac{(1+r)^{time} -1}{rate}(1+r) = C\\

PV 200,000

time: 18 years

rate: 6% = 6/100 = 0.06

200000 \div \frac{(1+0.06)^{18} -1}{0.06}(1+0.06) = C\\

C  $ 6,105.008

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