Question

If you wish to accumulate $200,000 in a child’s college fund after 18 years, and can invest at a 7.5% annual rate, how much must you invest at the end of each year if the first deposit is made at the end of the first year?

Answer 1

$5,605.79

Step-by-step explanation:

Given that,

Amount of money wish to accumulate in a child’s college fund after 18 years, future value = $200,000

Annual rate of interest, i = 7.5%

Annual payments, t = 18 years

Future value of ordinary annuity =
`P(((1+i)^(t)-1 )/(i))`

`200,000=P(((1+0.075)^(18)-1 )/(0.075))`

P = $5,605.7915 or $5,605.79 (Approx)

Hence, payments of $5605.79 needs to be made into the account if $200000 needs to be accumulated.