Jack and Jill have just had their first child. If they expect that college will cost $150,000 per year in 18 years, how much should the couple begin depositing annually at the end of each of the next 18 years to accumulate enough funds to pay 1 year of tuition 18 years from now? Assume they can earn a 6% annual rate of return on their investment.

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Business

Shawn Booker

17 February, 08:58

Jack and Jill have just had their first child. If they expect that college will cost $150,000 per year in 18 years, how much should the couple begin depositing annually at the end of each of the next 18 years to accumulate enough funds to pay 1 year of tuition 18 years from now? Assume they can earn a 6% annual rate of return on their investment.

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Briana · Answer 1

Annual deposit = $5,824.17

Explanation:

Giving the following information:

College will cost $150,000 per year in 18 years. The annual rate is 6%.

We need to calculate the annual deposit to pay for one year of college.

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}

A = (180,000*0.06) / {[ (1+0.06) ^18]-1} = $5,824.17