In: Finance
1. The parents of a 5-year old child wish to have $250,000 when
the child starts
college at the age of 18. How much should they deposit monthly in
an account
that pays 4.5% compounded monthly to achieve their goal?
2. A 25-year old saves for retirement by making monthly deposits
of $1000 in an
account that pays 4.9% compounded monthly. How much would be in the
account
at retirement age of 65?
Please provide answers ASAP.
Thanks
Ques-1)
Future Value at age 18 = $250,000
Calculating the monthly deposit using the Future Value of Ordinary Annuity:-
Where, C= Periodic Deposits
r = Periodic Interest rate = 4.5%/12 = 0.375%
n= no of periods = 13 years*12 = 156
C = $1,182.18
So, the monthly deposits is $1,182.18
Ques-2)
Monthly deposits made = $1,000
No of years monthly deposits will be made = 65years - 25years
= 40years
Calculating the Future value using the Future Value of Ordinary Annuity:-
Where, C= Periodic Deposits = $1,000
r = Periodic Interest rate = 4.9%/12 = 0.40833%
n= no of periods = 40 years*12 = 480
Future Value = $1,486,788.12
So, Value at retirement at age 65 is $1,486,788.12
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