Question

Assume the total cost of a college education will be $200,000 when your child enters college in 16 years. You presently have $73,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child’s college education?

Answer 1

6.5017%

Step-by-step explanation:

Given that,

Total cost of a college education when your child enters college in 16 years, Future value = $200,000

Amount today to invest, present value = $73,000

Time period = 16 years

Therefore,

Annual rate of interest:

`FV=PV(1+r)^(t)`

`200,000=73,000(1+r)^(16)`

`r =((200,000)/(73,000))^{(1)/(16)}-1`

r = 6.5017%

Therefore, the annual rate of interest you must earn on your investment to cover the cost of your child’s college education is 6.5017%.