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1 October, 10:38

Suppose that a family wants to start a college fund for their child. If you can get an APR of 7.5% and want the fund to have a value of $75,000 after 18 years, how much should you deposit monthly? Assume an ordinary annuity.

a.

$164.98

c.

$166.21

b.

$165.30

d.

$167.52

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Answers (1)
  1. 1 October, 10:41
    0
    The APR is 7.5%. This is a nominal rate. The effective rate is

    0.075/12 = 0.00625

    The term is

    18 (12) = 216 months

    The ordinary annuity would be

    A = F i / [ (1 + i) ^n - 1]

    A = 75000 (0.00625) / [ (1 + 0.00625) ^216 - 1]

    A = 164.98

    The answer is

    a. $164.98
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