Question

Suppose that a family wants to start a college fund for their child. If they can get a rate of 5.5% , compounded monthly, and want the fund to have a value of $35,450 after 20 years, how much should they deposit monthly? Assume an ordinary annuity and round to the nearest cent.

Answer 1

its a

Explanation:

Answer 2

They should deposit $81.38 monthly.

Explanation:

We know that,

`\text{FV of annuity}=P\left(((1+r)^n-1)/(r)\right )`

where,

FV of annuity = $35,450

P = monthly payment,

r = rate of interest = 5.5% annually =
`(5.5)/(12)\%`

n = number period = 20 years = 240 months

Putting all the values,

`\Rightarrow 35450=P\left(((1+(0.055)/(12))^(240)-1)/((0.055)/(12))\right )`

`\Rightarrow P(35450)/(\left(((1+(0.055)/(12))^(240)-1)/((0.055)/(12))\right ))`

`\Rightarrow P=\$81.38`

Therefore, they should deposit $81.38 monthly.