Question

In: Finance

It is assumed that $180,000 will be needed for a 4-yr college education in 12 years....

It is assumed that $180,000 will be needed for a 4-yr college education in 12 years. Calculate the monthly payment to an annuity if the interest rate is 4.5% p.a. compounded monthly.

Solutions

Expert Solution

Number of periods = 12 * 12 = 144

Monthly rate = 4.5% / 12 = 0.375%

Presnet value = Monthly payment * [1 - 1 / (1 + r)^n] / r

180,000 = Monthly payment * [1 - 1 / (1 + 0.00375)^144] / 0.00375

180,000 = Monthly payment * [1 - 0.583337] / 0.00375

180,000 = Monthly payment * 111.110104

Monthly payment = $1,620.01


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