Today you put $15,000 in the bank to save for your newly born child’s college ed

Question

Today you put $15,000 in the bank to save for your newly born child’s college education. You will leave it in the bank for 20 years. What quaternary rate of interest will you have to earn in order to be able to pay a $50,000 tuition bill when you take the money out ? Today you put $15,000 in the bank to save for your newly born child’s college education. You will leave it in the bank for 20 years. What quaternary rate of interest will you have to earn in order to be able to pay a $50,000 tuition bill when you take the money out ?

Explanation / Answer

Amount deposited = $15,000
Accumulated Sum = $50,000
Period = 20 years or 80 quarters

Let quarterly interest rate be i%

$15,000 * (1 + i)^80 = $50,000
(1 + i)^80 = 3.333
1 + i = 1.0152
i = 0.0152
i = 1.52%

Quarterly Interest Rate = 1.52%
Annual Interest Rate = 4 * 1.52%
Annual Interest Rate = 6.08%

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