Question

A man wants to set up a 529 college savings account for his granddaughter. How much would he need to deposit each year into the account in order to have $80,000 saved up for when she goes to college in 15 years, assuming the account earns a 6% return.

Annual deposit: $

Answer 1

We can use the future value formula for an annuity to solve this problem:

FV = PMT * ((1 + r)^n - 1) / r

where:

FV is the future value of the annuity

PMT is the regular payment or deposit

r is the annual interest rate

n is the number of periods (in this case, the number of years)

We want to solve for PMT, so we can rearrange the formula to get:

PMT = FV * r / ((1 + r)^n - 1)

Plugging in the given values, we get:

FV = $80,000

r = 6% = 0.06

n = 15 years

So, the annual deposit required is:

PMT = $80,000 * 0.06 / ((1 + 0.06)^15 - 1) ≈ $3,782.58

Therefore, the man would need to deposit approximately $3,782.58 into the account each year in order to have $80,000 saved up for his granddaughter's college education in 15 years, assuming a 6% return.