Assume the total cost of a college education will be $345,000 when your child enters college in 18 years. You presently have $73,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child's college education?

r=.0901, or 9.01%

Explanation:

N=18, PV=73,000, FV=345,000, I=? 9

Therefore:

V = PV (1 + r) t

= (FV/PV) 1/t - 1

r = ($345,000/$73,000) 1/18 - 1

r=.0901, or 9.01%

The annual rate of interest the person must earn on the investment to cover the cost of the child's college education is 9.01%

Answer: 9.01

Explanation:

GIVEN the following;

Period (t) = 18

Present value (PV) = $73,000

Future Value (FV) = $345,000

To calculate the rate of interest in other to attain a future value of $345,000 with a Present value of $73,000 in the next 18 years.

Recall:

Rate (r) = [ (FV/PV) ^1/t] - 1

r = [ ($345,000/$73,000) ^1/18 ] - 1

r = [ (4.72602739726) ^1/18] - 1

r = 1.0901142 - 1

r = 0.0901

r = 0.0901 or 9.01%

Rate of interest on the investment should be 9.01%