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29 September, 15:37

Mark and Mindy are new parents. They wish to start saving for their son's college education. They anticipate they'll need $150,000 in 18 years. How much should they deposit quarterly in an account that pays 7.75% per year compounded quarterly, to have the desired funds in 18 years?

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  1. 29 September, 15:56
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    Quarterly deposit = $1,001.06

    Explanation:

    Giving the following information:

    They anticipate they'll need $150,000 in 18 years. The account pays 7.75% per year compounded quarterly.

    To calculate the annual deposit, we need to use the following formula:

    FV = {A*[ (1+i) ^n-1]}/i

    A = annual deposit

    Isolating A:

    A = (FV*i) / {[ (1+i) ^n]-1}

    FV = 150,000

    n = 18*4 = 72

    i = 0.075/4 = 0.01875

    A = (150,000*0.01875) / [ (1.01875^72) - 1] = $1,001.06
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