Question

A fund for a child's education is being set up by a single payment so that at the end of 14 years there will be $48,368. If the fund earns interest at the rate of 4% compound semiannually, how much money should be paid into the fund?

Answer 1

Answer: Annual Payment is $1315.34

Explenation:

To solve this problem, we use the equation of future value of annual equity

Future Value(FV) = Annual payment(A) × Future Value of Annual Interest Factor(FVAIF)

As per the Question,

Number of years =14

Interest Rate = 4%

Here we make payment in semi-Annually

so, Number of year multiplied wih 2 and interst pecentage devided with 2

Number of Periods =14 × 2 =28

Interest Rate = 4%/2 = 2%

Present value of Annual Interst Factor (PVAIF) =1+ 2%^28 = 36.7722

   Future Value =$48368

we can solve this problem with the equation

FV = A × FVAIF

$48368 = A × 36.7722

Annual Payment = $48368/36.7722

=$1315.34148