Question

Assume that the educational savings account will return a constant 9%. The parents deposit $2400 on their daughter's first birthday and plan to increase the size of their deposits by 7% each year. Assuming that the parents have already made the deposit for their daughter's 18th birthday, then the amount available for the daughter's college expenses on her 18th birthday is closest to ________.

Answer 1

the amount available is $160,463

Step-by-step explanation:

The computation of the amount available for the daughter's college expenses on her 18th birthday is shown below:

= First deposit × ((1 + rate of interest)^number of years - (1 + growth rate)^number of years) ÷ (rate of interest - growth rate)

= $2,400 × ((1 + 0.09)^18 - (1 + 0.07)^18) ÷ (0.09 - 0.07)

= $160,463

hence, the amount available is $160,463