1) Assume the total cost of a college education will be $300,000 when your child

Question

1) Assume the total cost of a college education will be $300,000 when your child enters college in 18 years. You presently have $71,000 to invest.

What annual rate of interest must you earn on your investment to cover the cost of your child’s college education? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What is the annual rate of interest? = _________________________________

2) You're trying to save to buy a new $208,000 Ferrari. You have $58,000 today that can be invested at your bank. The bank pays 6.6 percent annual interest on its accounts.

How long will it be before you have enough to buy the car? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Number of years: ___________________

2) You're trying to save to buy a new $208,000 Ferrari. You have $58,000 today that can be invested at your bank. The bank pays 6.6 percent annual interest on its accounts.

Explanation / Answer

Investing 71000 for 18 years to make it 300000, the interest rate should be:

71000*[(1+r)^18]=300000

(1+r)^18=4.2253

1+r=1.0833

Thus, r=8.33%

Now, with a 6.6% interest rate, the investment years would be as follows:

58000*(1.066^n)=208000

1.066^n=3.5862

n=log3.5862/log1.066= 0.5546/0.0277= 20.02 years

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