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oday Dante and Sharon had their first child and they want to begin saving for their...

oday Dante and Sharon had their first child and they want to begin saving for their child’s education. With all the expenses of having a new child they feel they can only afford to put away $75 a month but they plan to continue doing so until the child turns 18. They are budgeting for an interest rate of 3.2%, compounded monthly. How much money will they have in the account by their child’s 18th birthday? How much interest will be earned?

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Answer #1

Periodic monthly Deposits by Dante and Sharon = $75

They continued it until the child turned age 18 i.e., for 18 years.

Calculating the Future value or accumulated value of account using Future Value of annuity formula:-

Where, C= Periodic Deposits =$75

r = Periodic Interest rate = 3.2%/12 = 0.2666%

n= no of periods = 18years*12 = 216

Future Value = $21,868.46

So, money they have in the account by their child’s 18th birthday is $21,868.46

Amount of Interest Earned = Future Value - (No of Payments*Periodic monthly Deposits)

=$21,868.46 - (216*$75)

=$ 5,668.46

If you need any clarification, you can ask in comments.     

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