Suppose that a family wants to start a college fund for their child. If they can get a rate of 5.5%, compounded monthly, and want the fund to have a value of $35,450 after 20 years, how much should they deposit monthly? Assume an ordinary annuity and round to the nearest cent.

Question

Ashley Lawson

Mathematics

20 May, 00:21

Suppose that a family wants to start a college fund for their child. If they can get a rate of 5.5%, compounded monthly, and want the fund to have a value of $35,450 after 20 years, how much should they deposit monthly? Assume an ordinary annuity and round to the nearest cent.

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Lou · Answer 1

In 20 years a family will be able to earn 35 450 dollars. The interest that they earned is 5.5% compounded monthly. Now, let's find out how much will they need to save monthly to get this amount in 20 year:

=> 12 * 20 = 240 months

=> 35 450 / 240 months = 147.7 dollars per month is the money with interest

Let's subtract the interest

=> 147.7 * 0.055 = 8.1 dollars.

=> 147.7 - 8.1 = 139.6 dollars per month.