Question

a. How much must you invest today in a savings account paying 4% so that in 15 years you will have $100000 in the account for your son’s college fund?

b. How much must you invest annually starting a year from now so that after 15 annual payments your daughter’s college fund will be worth $100000? Again assume the interest rate is 4%.

Answer 1

a.

Amount to be deposited today = 100000*(P/F,4%,15)

= 100000*0.555265

= 55526.50

b.

Amount to be deposited annually = 100000*(A/F,4%,15)

= 100000*0.049941

= 4994.10