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Pachacha [2.7K]
3 years ago
15

Assume the total cost of a college education will be $345,000 when your child enters college in 18 years. You presently have $73

,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child’s college education?
Business
2 answers:
Amanda [17]3 years ago
8 0

Answer: 9.01

Explanation:

GIVEN the following ;

Period(t) = 18

Present value(PV) = $73,000

Future Value(FV) = $345,000

To calculate the rate of interest in other to attain a future value of $345,000 with a Present value of $73,000 in the next 18 years.

Recall:

Rate(r) = [ (FV/PV)^1/t] - 1

r = [ ($345,000/$73,000)^1/18 ] - 1

r = [(4.72602739726)^1/18] - 1

r = 1.0901142 - 1

r = 0.0901

r = 0.0901 or 9.01%

Rate of interest on the investment should be 9.01%

iren2701 [21]3 years ago
4 0

Answer:

r= .0901, or 9.01%

Explanation:

N=18, PV=73,000, FV=345,000, I=? 9

Therefore:

V = PV(1 +r)t

= (FV/PV)1/t– 1

r= ($345,000/$73,000)1/18– 1

r= .0901, or 9.01%

The annual rate of interest the person must earn on the investment to cover the cost of the child’s college education is 9.01%

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Rent (Prepaid)                                 0                0               0

Revenue after Rent paid           140,000   139,000    141,000

Less: Corporate Taxes at 30% <u>42,000         41,700        42,300</u>

Net Income                               <u>$98,000    $97,300    $98,700</u>

<u></u>

Considerations for No Allocation

- Taxes are to be deducted from Gross Profit.

- Rent not to be deducted from Gross Profit.

b. Comprehensive Allocation

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Less: Operating Expense         <u>210,000</u>   <u>210,000</u>    <u>210,000</u>

Gross Revenue                         140,000   139,000    141,000

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