Question

It is 2017. My 2-year old daughter wants to go to Harvard (a private U.S. university) starting in 2033 (in 16 years’ time). The tuition fee is estimated to be $250,000. How much do I need to put aside starting one month from today and at the end of every one month until I have $250,000 saved up to pay her tuition fees in 2033? Assume I can earn 1% interest per month in my investment account. Please round your answer to two decimal places.

Answer 1

Future Value of Annuity :
Annuity is series of cash flows that are deposited at regular intervals for specific period of time at the end of the each period.

FV of Annuity = CF [ (1+r)^n - 1 ] / r
r - Int rate per period = 1% or 0.01 per month
n - No. of periods = 16 years * 12 = 192 months

Particulars	Amount
FV of Annuity	$      250,000.00
Int Rate	1.0000%
Periods	192

FV of Annuity = Cash Flow * [ [(1+r)^n ] - 1 ] /r
$250000 = Cash Flow * [ [ ( 1 + 0.01 ) ^ 192 ] - 1 ] / 0.01
$250000 = Cash Flow * [ [ ( 1.01 ) ^ 192 ] - 1 ] / 0.01
$250000 = Cash Flow * [ [ ( 6.7562 ] - 1 ] / 0.01
$250000 = Cash Flow * [ 5.7562 ] / 0.01
Cash Flow = $ 250000 * 0.01 / 5.7562
Cash Flow = $ 434.31
if you deposit $ 434.31 at end of every month starting from today ,you can have $ 250000 after 16 years in your account.

Please comment if any further assistacne is required.