Question

Debra and Gary want to begin saving for their baby's college education. They estimate that they will need $180000 in eighteen years. If they are able to earn 7% per annum, how much must be deposited at the beginning of each of the next eighteen years to fund the education?

Answer 1

Annual deposit= $5,249.27

Step-by-step explanation:

Giving the following information:

Future value (FV)= $180,000

Number of years= 18 years

Interest rate= 7%

To calculate the annual deposit, 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*0.07) / [(1.07^18) - 1]

A= $5,249.27