A careful father decides to deposit $144.00 every month to fund his daughter’s college education. He deposits the money in a fund that pays 6.12% APR. His first deposit will be in one month, and his daughter will start college in 14.00 years. How much money will he have saved for his daughter at the end of the 14.00th year?
| Calculation of amount of money saved by careful father for his daughter at the end of the 14th year | |||||||||
| We can use the future value of annuity formula to calculate the amount of money saved. | |||||||||
| Future value of annuity = P x {[(1+r)^n -1]/r} | |||||||||
| Future value of annuity = amount of money saved at the end of 14th year = ? | |||||||||
| P = monthly deposit to fund = $144 | |||||||||
| r = APR per month = 6.12%/12 = 0.0051 | |||||||||
| n = number of months deposit = 14 years * 12 = 168 | |||||||||
| Future value of annuity = 144 x {[(1+0.0051)^168 -1]/0.0051} | |||||||||
| Future value of annuity = 144 x 264.80 | |||||||||
| Future value of annuity = 38,131.40 | |||||||||
| The amount of money saved by careful father for his daughter at the end of the 14th year = $38,131.40 | |||||||||
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