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Use the savings plan formula to answer the following question.
Your goal is to create a college fund for your child.
Suppose you find a fund that offers an APR of 7%.
How much should you deposit monthly to accumulate $89,000 in 13 years?
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I will consider/assume this saving plan as a classic Ordinary Annuity saving plan
(money are deposited at the end of each month). The general formula for such a plan is
FV = ,
where FV is the future value of the account; P is the monthly payment (deposit);
r is the monthly effective percentage 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 the monthly payment
P = . (1)
Under the given conditions, FV = $89,000; r = 0.07/12; n = 13*12.
So, according to the formula (1), you get for the monthly payment value
P = = 351.3193,
which we round to rounded to closest greater cent $351.32.
Answer. The necessary monthly deposit value is $351.32.
Solved.