Question

Your younger sister is just starting high school, and 5 years from today she should be entering college. Your father plans to start a college fund for her, beginning today. He will invest $5,000 per year in a mutual fund, beginning today, and he expects to earn an annual return of 8%. What is the expected value of the college fund when your sister enters college?

Answer 1

FV= $29,333

Step-by-step explanation:

Giving the following information:

Number of periods= 5 years

Annual investmemnt= $5,000

Interest rate= 0.08

To calculate the future value, we need to use the following formula:

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

A= annual deposit

FV= {5,000*[(1.08^5) - 1]} / 0.08

FV= $29,333