Question

eBook Problem 7-05 Holly wants to have $230,000 to send a recently born child to college. She sets up a 529 plan and wants to know how much she must invest at the end of each year for the next 18 years if the funds can earn 6 percent. Use Appendix C to answer the question. Round your answer to the nearest dollar. $   If she can earn 8 percent, how much less will she have to invest each year? Use Appendix C to answer the question. Round your answer to the nearest dollar. $

Answer 1

- Future Value at the end of 18 years required = $230,000

a). Calculating the amount she has to invest at the end of each year if the funds can earn 6 percent:-

Where, C= Periodic Investment

r = Periodic Interest rate = 6%

n= no of periods = 18

C = $7442.00

So, the amount she must invest at the end of each year for the next 18 years is $7442

b). Calculating the amount she has to invest at the end of each year if the funds can earn 8 percent:-

Where, C= Periodic Investment

r = Periodic Interest rate = 8%

n= no of periods = 18

C = $4606.11

So, Periodic Investment is $4606.11

- If she can earn 8 percent, how much less will she have to invest each year = $7442.00 - $4606.11

= $2835.89

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