You think that in 15 years it will cost $214,000 to provide your child with a 4-year collge education. Will you have enough if you take $75,000 toady and invest it for 15 years at 4%?

Question

Norris

Business

11 July, 11:56

You think that in 15 years it will cost $214,000 to provide your child with a 4-year collge education. Will you have enough if you take $75,000 toady and invest it for 15 years at 4%?

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Answers (1)

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Belinda Osborne · Answer 1

You will not have enough.

Explanation:

The rate of the investment is compounded, so the value at year 1, will be the value at year 0, increased in a 4%. Then, the value at year 2 will be the value at year 1, increased in other 4%, that's equal to the value at year 0 increased twice at 4%.

So, the formula to calculating the value at year 15 is 75,000 * (1.04) ^15 = 135,070.63. THen, it will not be enough. You have to invest at least 214,000/1.04^15 = 118,826.20 at year 0, at a rate of 4%.