Question

Jack and Jill have just had their first child. If college is expected to cost ​$140,000 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 frm​ now? Assume that they can earn a 8​% annual rate of return on their investment.

The amount that the couple should begin depositing annually at the end of each year is $

​

Answer 1

Solution :-

Rate of Return = 8%

Amount Required at the end of 18 Years for College Cost = $140,000

Suppose the Amount of Annual Deposit be X

Now as per data given

X * FVAF ( 8% , 18 ) = $140,000

X * [ ( 1 + 0.08 )18 - 1 ] / 0.08 = $140,000

X * [ 3.996 - 1 ] = $11,200

X = $11,200 / 2.996

X = $3,738.29

Therefore The amount that the couple should begin depositing annually at the end of each year is $3,738.29

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