Question

9.         How much would you need to invest today for your child to have $30,000 for his/her college education? Assume your child is currently 3 years of age, and you anticipate they’ll begin college 15 years from now (at age 18). Market rates of return on aggressive investments average 13.0%.

10.       Using the same scenario above, how much would you need to invest per month to have the $30,000 by the time your child begins college?

Answer 1

9.Information provided:

Future value= $30,000

Time= 15 years

Yield to maturity= 13%

The question is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 30,000

I/Y= 13

N= 15

Press the CPT key and PV to compute the present value.

The value obtained is 4,796.72.   

Therefore, I would need to invest $4,796.72 today to have $30,000 in 15 years.

10.Information provided:

Future value= $30,000

Time= 15 years*12= 180 months

Monthly interest rate= 13%/12 = 1.0833%

The monthly investment is calculated by entering the below in a financial calculator:

FV= -30,000

N= 180

I/Y= 1.0833

Press the CPT key and PMT to compute the amount of monthly investment.

The value obtained is 54.5727.

Therefore, I need to invest $54.57 every month to have $30,000 by the time my child begins college.

In case of any query, kindly comment on the solution.