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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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  1. 17 February, 10:56
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    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
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