Harry decided to save money for his new born son\'s college cost right now. He w

Question

Harry decided to save money for his new born son's college cost right now. He wants to have exist120,000 in 18 years. Bank of America has a program paying 2.5% interest rate compounded monthly. Harry has two options. Option A, deposit a big amount of money now and withdraw it after 18 years. Option B, deposit a small amount of money at the end of every month for 18 years. (a) For option A, how much does he need to deposit now? (b) How much total interest will he receive for option A? (c) For option B, what is his monthly payment? (d) How much total interest will he receive for option B?

Explanation / Answer

A=p(1+r/n)nt   

a) A=120000 r=.025 n=12 t=18 we have to find P

P=A/(1+r/n)^nt

=120000/(1+0.025/18)^12*18

=88916

Answer he need to deposit 88916 now

b) he get interest 120000-88916=31083

   Answer 31083

Thanks :)

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