3 College savings plans, such as a 529 plan, allow individuals to put money asi
ID: 3116289 • Letter: 3
Question
3 College savings plans, such as a 529 plan, allow individuals to put money asi college later. If one such plan offers arte of 2% compounded a college savings plan in 2016 to pay for 1 year of the cost of college at a 4-year pry incoming freshman in 2034? continuously, how much should be put in private college for an Will invest $2000 in his IRA n a bond trust that pays 9% compounded semiannually. His friend Henry invests $2000 in his IRA in a CD that pays 8.5% compounded continuously. Who has more money after 20 years?Explanation / Answer
In Q3, the fees amount in 2034 is not mentioned so it is not possible to determine the answer without knowing hte target money;
In Q4:
In bond investment 2000$ in bond investment compounded semi annually;
In 20 years the amount will become : A = P * (1 + r/100)n = 2000 * (1+0.045)40 = 2000 * (1.045)40
= 20000 * 5.81636 = 1,16,327.29 $
Thus, the principal will be = 1,16,327.29$ in bond investment
In 8.5% compounded continuously investment:
A = P * ert = 20000 * e 0.085*20 = 20000 * 5.4739 = 10,9478.95 $
Compared to this, the 9% semi annually compounded bond payment is more profitable;
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