Assume the total cost of a college education will be $325,000 when your child enters college in 16 years. you presently have $40,000 to invest and do not plan to invest anything further. what annual rate of interest must you earn on your investment to cover the entire cost of your child's college education?

Future value FV = $325,000

Investment I = $40,000

Number of years n = 16

Annual rate = r

We have the equation FV = I (1 + r) ^n = > 325000 = 40000 (1 + r) ^16

(1 + r) ^16 = 325 / 40 = > 1 + r = (325 / 40) ^ (1/16) = > 1 + r = 1.1398

Rate of Interest r = 1.1398 - 1 = 0.1398 that is 13.98%

Annual rate of Interest r = 13.98%