Question

Assume that your parents wanted to have $160,000 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

$200,000

saved just in​ case, how much would they have to save each year to reach their new​ goal?

a. How much would they have to save each year to reach their​ goal? To reach the goal of $160,000​, the amount they have to save each year is

b. If they think you will take five years instead of four to graduate and decide to have $200,000 saved just in​ case, how much would they have to save each year to reach their new​ goal? To reach the goal of $200,000​, the amount they have to save each year is ?

Answer 1

Part a.

Future value of amount to be saved	160000
No. of deposits	18
Interest rate	8%

Future value of annual deposits = Annual deposits x (((1+Interest rate)^no. of deposits - 1)/Interest rate)

160000 = Annual deposits x 37.4502

Annual deposits = 160000 /37.4502

Annual deposits = 4,272.34

Part b:

Future value of amount to be saved	200000
No. of deposits	18
Interest rate	8%

Future value of annual deposits = Annual deposits x (((1+Interest rate)^no. of deposits - 1)/Interest rate)

160000 = Annual deposits x 37.4502

Annual deposits = 200000 /37.4502

Annual deposits = 5,340.42

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