Question

Mark and Mindy are new parents. They wish to start saving for their son’s college education. They anticipate they’ll need $150,000 in 18 years. How much should they deposit quarterly in an account that pays 7.75% per year compounded quarterly, to have the desired funds in 18 years?

Answer 1

Quarterly deposit= $1,001.06

Step-by-step explanation:

Giving the following information:

They anticipate they’ll need $150,000 in 18 years. The account pays 7.75% per year compounded quarterly.

To calculate the annual deposit, we need to use the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

Isolating A:

A= (FV*i)/{[(1+i)^n]-1}

FV= 150,000

n= 18*4= 72

i= 0.075/4= 0.01875

A= (150,000*0.01875) / [(1.01875^72)-1]= $1,001.06