Ryan\'s friend, Sebastian, wants to go to business school. While his father will

Question

Ryan's friend, Sebastian, wants to go to business school. While his father will share some of the expenses, Sebastian still needs to put in the rest on his own. But Sebastian has no money saved for it yet. According to his calculations, it will cost him $13,902 to complete the business program, including tuition, cost of living, and other expenses. He has decided to deposit $4,200 at the end of every year in a mutual fund, from which he expects to eam a fixed 10% rate of return. It wl take approximately school. years for Sebastian to save enough money to go to business 2.55 years 4.05 years 3.00 years 3.75 years

Explanation / Answer

BestPMT = 4200, Rate of interest = 10%
Future Value = PMT* [( 1 + interest)n -1]/r (Formula for future value of annuity)
13,902 = 4200 * [( 1 + 10%)n -1]/10%
13902* 10%/4200 = 1.1n -1
0.331 + 1 = 1.1n
1.1n = 1.331
1.1n = 1.1n
n=3 years

Best of Luck. God Bless

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