Question

Barack and Michelle Obama want to begin saving for their two daughter’s college fund. They estimate they will need $1,000,000 to pay for four years of college costs. They want to know how much they need to set aside at the end of each month in a college savings fund that will yield 8% interest annually. They have 18 years to complete this goal for their college fund. How much do the Obamas need to save at the end of each month? $20,083 $2,200 $2,083 $1,970

Answer 1

Monthly saving would be $ 2,083

The required monthly amount will be so much amount , the future value of which become equal to needed amount of $ 1,000,000 in 18 years

Monthly amount

=

Future value in 18 years / Future value of annuity of 1

=

$       10,00,000

/

480.1072

=

$                2,083

Working:

Future value of annuity of 1

=

(((1+i)^n)-1)/i

Where,

=

(((1+0.006667)^216)-1)/0.006667

i

8%/12

=

0.006667

=

480.1072

n

18*12

=

216