Question

Lucy and Fred want to begin saving for their baby's college education. They estimate that they will need $120,000 in eighteen years. If they are able to earn 7% per annum, how much must be deposited at the end of each of the next eighteen years to fund the education

Answer 1

$3,529.51

Step-by-step explanation:

Future value = $120,000

N = 18

i = 7%

Future value = Annual savings * [(1 + Interest rate)^Years - 1] / Interest rate

Future value = Annual savings * [(1 + 0.07)^18 - 1 / 0.07]

Annual savings = $120,000 / [(1 + 0.07)^18 - 1 / 0.07]

Annual savings = $120,000 / 2.37993227573 / 0.07

Annual savings = $120,000 / 33.99903251042857

Annual savings = $3529.512199007199

Annual savings = $3,529.51

Therefore, the annual savings is $3,529.51