Question

In: Finance

1. The parents of a 5-year old child wish to have $250,000 when the child starts...

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

Solutions

Expert Solution

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

If you need any clarification, you can ask in comments.

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jeff jeffy answered 1 year ago

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