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Assume the total cost of a university education will be $70,000 when your child enters university...

Assume the total cost of a university education will be $70,000 when your child enters university in 6 years. You presently have $40,000 to invest. What annual rate of interest (APR) must you earn, if the interest is compounded semi-annually? Enter your answer as a percentage. Do not include the percentage sign in your answer.

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Answer #1

Total Cost of university in 6 years (Future Value) = $70,000

Amount presently Invested(Present Value) = $40,000

Calculating the Annual rate of Interest that would be earned to accumulated the amount:-

Where,

r = Interest rate

n= no of periods = 6 = 12

m = no of times compounding in a year = 2 (compounded semi-annually)

Taking 12-rot on both sides,

1.0477391466 = (1+r/2)

r = 9.5478%

So, annual rate of interest (APR) must you earn, if the interest is compounded semi-annually is 9.55%

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