A friend with a newborn is wondering how much to contribute to a529 plan to...

A friend with a newborn is wondering how much to contribute to a 529 plan to help fund college for the child in 18 years. She wants to have $125,000 in the account to help pay for the child’s four years of college. You believe the fund can earn 7% annually and that inflation will average 3%. How much must be contributed at the end of each year to fund this account? A. $6,900. B. $3,680. C. $2,980. D. $4,050. E. $5,340.

Expert Solution

Future Value Annuity =

r = 0.07

n = 18

125,000 =

125,000 = Periodic Payment * 33.9990325085

Periodic Payment = 125,000 / 33.9990325085

Periodic Payment = 3676.58 OR 3680 (rounding off)

Option b is correct.

jeff jeffy answered 2 years ago

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