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Jack and Jill have just had their first child. If college is expected to cost $150,000...

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

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Answer #1
We can use future value of ordinary value formula to determine
annual deposit as follows.
Future Value of an Ordinary Annuity
= C*[(1+i)^n-1]/i
Where,
C= Cash Flow per period
i = interest rate per period
n=number of period
150000= C[ (1+0.06)^18 -1] /0.06
150000= C[ (1.06)^18 -1] /0.06
150000= C[ (2.8543 -1] /0.06]
C =4853.48
Annually deposit = $4853.48
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