Question

A family want to have a $220,000.00 higher education fund for their children at the end of 22 years. How much should they contribute at the end of quarterly if they can get 6.3% compounded quarterly on their investment?

Answer 1

To have a higher education fund of $220,000 in 22 years with a 6.3% interest rate compounded quarterly, the family should contribute around $39,905.16 at the end of each quarter.

Step-by-step explanation:

To calculate how much the family should contribute at the end of each quarter, we can use the formula for compound interest: A = P(1 + r/n)^(nt), where A is the future value, P is the present value (the amount the family wants to have), r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years. In this case, the family wants to have $220,000 at the end of 22 years, the interest rate is 6.3%, and interest is compounded quarterly.

Using the formula, we have:

A = P(1 + r/n)^(nt)

220,000 = P(1 + 0.063/4)^(4*22)

Dividing both sides of the equation by (1 + 0.063/4)^(4*22), we get:

P = 220,000 / (1 + 0.063/4)^(4*22)

Simplifying the equation gives us:

P ≈ $39,905.16

Therefore, the family should contribute approximately $39,905.16 at the end of each quarter.