.
A new mother would like to start a college fund for her newborn daughter. She makes quarterly deposits
of $500 into a college fund that earns 6% compounded quarterly for the next 18 years.
.
How much will her daughter have available in her college fund when she turns 18? $
Round to the nearest dollar
What is total amount the mother deposited into the fund over the 18 years? $
Round to the nearest dollar
How much interest was earned over the 18 years? $
Round to the nearest dollar
Use the WHOLE DOLLAR AMOUNTS you entered in as your answers above.
~~~~~~~~~~~~~~~~~
It is a classic Ordinary Annuity saving plan. The general formula is
FV = , (1)
where FV is the future value of the account; P is the quarterly payment (deposit);
r is the quarterly effective percentage yield presented as a decimal;
n is the number of deposits (= the number of years multiplied by 4, in this case).
Under the given conditions, P = 500; r = 0.06/4; n = 4*18 = 72.
So, according to the formula (1), she will get at the end of the 18-th year
FV = = = $64038 (rounded).
Note that she will deposit only 4*18*$500 = $36,000. The rest is what the account earns/accumulates in 18 years.
-----------------
On Ordinary Annuity saving plans, see the lessons
- Ordinary Annuity saving plans and geometric progressions
- Solved problems on Ordinary Annuity saving plans
in this site.
The lessons contain EVERYTHING you need to know about this subject, in clear and compact form.
When you learn from these lessons, you will be able to do similar calculations in semi-automatic mode.