Question

Martha has $10,000 saved and wants to attend a college with a current tuition of $10,000 a year. She will graduate from high school in five years. Roughly how much more will Martha need to save for one-year's tuition to account for an annual rate of inflation of 3%?

Answer 1

1,590.00

Step-by-step explanation: I took the test

Answer 2

$1,592.74

Martha will need to pay $1,592.74 more

Explanation:

Using the compound interest/inflation formula;

A = P(1+r)^(t)

Where;

A = final value

P = initial value = $10,000

r = inflation rate = 3% = 0.03

t = time = 5 years

Substituting the values;

A = $10,000(1+0.03)^(5)

A = $11592.740743

A = $11,592.74

How much more will Martha need to save;

C = final value - initial value = A - P

C = $11,592.74 - $10,000

C = $1,592.74

Martha will need to pay $1,592.74 more