Assume that your parents wanted to have $ 110 comma 000 saved for college by your 18th birthday and they started saving on your first birthday. They saved the same amount each year on your birthday and earned 8.0 % per year on their investments. a. How much would they have to save each year to reach their goal? b. If they think you will take five years instead of four to graduate and decide to have $ 150 comma 000 saved just in case, how much would they have to save each year to reach their new goal?

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Business

Tucker Horne

31 January, 19:06

Assume that your parents wanted to have $ 110 comma 000 saved for college by your 18th birthday and they started saving on your first birthday. They saved the same amount each year on your birthday and earned 8.0 % per year on their investments. a. How much would they have to save each year to reach their goal? b. If they think you will take five years instead of four to graduate and decide to have $ 150 comma 000 saved just in case, how much would they have to save each year to reach their new goal?

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Answers (1)

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Daniella · Answer 1

A) Annual deposit = $2962.94

B) Annual deposit = $25,568.47

Explanation:

Giving the following information:

Your parents wanted to have $ 110,000 saved for college by your 18th birthday and they started saving on your first birthday. They saved the same amount each year on your birthday and earned 8.0 % per year on their investments.

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) A = (100000*0.08) / [ (1.08^17) - 1] = 2962.94

B) A = (150000*0.08) / [ (1.08^5) - 1] = $25,568.47