Finance Question

Question

at your childs birth you begin contributing monthly to a college fund. the fund pays an apr 4.9% compounded monthly. you figure your child will need $30,000 at age of 18 to begin college. what monthly deposit is required?

Answer 1

SInce the APR is 4.9%, you have to adjust it to represent that more frequent compounding. You will also need to adjust your N to reflect more frequent compounding.

N = 216 (18 years x 12 months per year)

Rate= about 0.4083333333333333 per month (.049/12).

PV = 0

FV = 30,000

You can solve in excel by using the pmt formula (=pmt)

You can solve on a financial calculator by using the financial function keys and using the number's from above.

You can also solve by using the annuity formula.

I got $86.80 per month