Question

Jason and Piera decide to start a college savings account for their newborn son, Joseph. They want to have $40,000 available for him when he is 18, and they expect the account to have an average return of 7%. How much do they need to deposit each month to reach this goal?

Round answer to 2 decimal places.

Answer 1

To find the monthly deposit needed to reach $40,000 in 18 years with an average return of 7%, we can use the formula for compound interest.

Step-by-step explanation:

To find the monthly deposit needed to reach $40,000 in 18 years with an average return of 7%, we can use the formula for compound interest.

Let's assume the monthly deposit is 'X'.

The future value of the savings account after 18 years will be $40,000.

Now, we can use the formula for compound interest: FV = PV(1 + r/n)^(nt), where FV is the future value, PV is the present value, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.

Plugging in the given values, we get: $40,000 = X(1 + 0.07/12)^(12 * 18).

Solving this equation for X gives us the monthly deposit needed to reach the goal.

Answer 2

Step-by-step explanation: