References Mailings Review View AabbcDdEe AaBbCcDdEe A Normal No Spacing Issue #

Question

References Mailings Review View AabbcDdEe AaBbCcDdEe A Normal No Spacing Issue #2: My granddaughter, who is in kindergarten, informed my wife her favorite class is "recess". My wife has concluded she probably will not be receiving an academic scholarship for recess, thus she wants to save money for her college education. Her financial planner suggested she use a money factor of 5%. What does my wife need to invest today so she has $50,000 available for college in 15 years? What would she need to invest each year, if she wants an alternative, to a'lump sum initial deposit.

Explanation / Answer

Option 1:

Future value = 50000

Maturity = 15 years

Discount rate = 5%

Present value = Future Value/(1 +r)^n or 50000*Present value interest factor(5%,15)

= 50000/(1+0.05)^15 = 50000*0.481 = 24050

Value of investment today = 24050

Option 2:

Future value = A/i [(1+ r)^n - 1]

15000 = A/5%[(1.05)^15 - 1]

15000*5% = A*1.0789

750 =  1.0789A

A = 695.15

Investment to be made each year to have $15000 at 15th year end = $695.15

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