Fred and Melissa Furth's daughter Sally will be a freshman in college in six years.

Question

Fred and Melissa Furth's daughter Sally will be a freshman in college in six years. To help cover their extra expenses, the Furths decide to set up a sinking fund of $15,000. If the account pays 10% interest and they wish to make quarterly payments, find the size of each payment. (Round your answer to the nearest cent.)

Answer 1

We just need to define 5 variables:

P = payment

A = amount of fund

r = interest rate

n = number of payments per year

y = number of years

Then the formula becomes:

P = ( A * r / n ) / ((( 1 + ( r / n )) ^ ( n * y)) - 1 )

= ( 15000 * 0.1 / 4 ) / ((( 1 + ( 0.1 / 4 )) ^ ( 4 * 6 )) -1)

= 375 / (( 1.025 ^ 24 ) - 1 ) = 375 / ( 1.809 - 1 )

= $463.69