Question

"Assume that your parents wanted to have $120,000 saved for college by your eighteenth birthday and they started saving on your first birthday (that is, when you turned one). They saved the same amount each year on your birthday and earned 8% per year on their investments. How much would they have to save each year to reach their goal?"

Answer 1

$3,204.25

Step-by-step explanation:

The amount of money that my parents will save for each year for my college for 18 years shall be determined through future value of annuity formula which is mentioned below:

Future value=R[((1+i)^n-1)/i]

In the given question,

Future value=Amount at the end of 18th year=$120,000

R=amount that should be save by my parent per year=?

i=interest earned by my parents=8%

n=number of payments involved=18

120,000=R[((1+8%)^18-1)/8%]

R=$3,204.25