Question

Assume the total cost of a college education will be 405,000 when your child enters college in 16 years. You presently have67,000 to invest. What annual rate of interest is needed to reach the total cost?

Answer 1

To reach the total cost of college education in 16 years, an annual rate of interest of approximately 7.64% is needed.

Step-by-step explanation:

Annual Rate of Interest Needed

To calculate the annual rate of interest needed to reach the total cost of the college education, we can use the compound interest formula: A = P(1+r)^n, where A is the future value, P is the present value, r is the annual interest rate, and n is the number of years. In this case, the present value (P) is $67,000, the future value (A) is $405,000, and the number of years (n) is 16. We need to solve for the annual interest rate (r). Rearranging the formula, we have r = (A/P)^(1/n) - 1. Plugging in the values, we get r = (405,000/67,000)^(1/16) - 1. Evaluating this expression, the required annual rate of interest is approximately 7.64%.