SOLUTION: Your baby is born, and you want to make monthly payments into a college fund over the next 18 years. Your goal is to have $100,000 in the fund in 18 years. Assuming an APR of 5%, c

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Question 1123825: Your baby is born, and you want to make monthly payments into a college fund over the next 18 years. Your goal is to have $100,000 in the fund in 18 years. Assuming an APR of 5%, calculate how much you should deposit monthly?


Answer by ikleyn(52776)   (Show Source): You can put this solution on YOUR website!
.
It is a classic Ordinary Annuity saving plan. The general formula is 


    FV = ,    


where  FV is the future value of the account;  P is the monthly payment (deposit); r is the monthly percentage yield presented as a decimal; 
n is the number of deposits (= the number of years multiplied by 12, in this case).


From this formula, you get for for the monthly payment 


    P = .     (1)


Under the given conditions, FV = $100,000;  r = 0.05/12;  n = 18*12.  So, according to the formula (1), you get for the monthly payment 


    P =  = $286.37.


Answer.  The necessary monthly deposit value is $286.37.


Note that of projected $100,000 the total of yours monthly payment deposits will be only  18*12 times $286.37, i.e. 18*12*286.37 = 61855.92 dollars.
The rest is what the account will earn/accumulate in 18 years.

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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.


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