Question

You've deposited $5,000 into a Michigan Education Savings Program (a 529 college savings program) for your daughter who will be attending college in 15 years. In order for it to grow to $24,000 by the time she goes to college, what annual rate of return would you have to earn?

N= I/Y= PV= PMT= FV= P/Y=

Answer 1

Ans. the annual rate of return, in order to turn $5,000 into $24,000 in 15 years is 11.02% annual.

Explanation:

Hi, well, in order to find the value of the interest rate of return, we need to solve for "r" the following equation,

`Future Value=PresentValue(1+r)^(n)`

Where:

n= years (time that the money was invested)

r=annual rate of return (Decimal)

So, let´s see the math of this.

`24,000=5,000(1+r)^(15)`

`(24,000)/(5,000) =(1+r)^(15)`

`\sqrt[15]{(24,000)/(5,000) } =1+r`

`\sqrt[15]{(24,000)/(5,000) } -1=r`

`r=0.11023`

So the annual rate of return that turns $5,000 into $24,000 in 15 years is 11.02%.

N=15; PV=5,000; FV=24,000; PMT=N.A; I/Y=11.02% P/Y=N.A

Best of Luck.