Question 977094: At his son's birth, a man invested $2,000 in savings at 6% for his son's college education. Approximately how much, to the nearest dollar, will be available in 19 years?
≈ $
Because of inflation, money is depreciating in real value. If the rate of inflation is 8% a year, what is the current real value, to the nearest dollar, from the preceding problem above? After 19 years, did the father and son have more or less money, as measured by current real value, than they did at the son's birth?
real value ≈ $
Did the father and son have more or less money? Type "more" or "less" to answer the question.
They had (more/less) money.
Answer by JulietG(1812)   (Show Source):
You can put this solution on YOUR website! That will depend upon how often it's compounded. If we assume annual compounding, the amount available after 19 years is $6051.20 (I used a compounding calculator).
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You can already tell that if he's gaining 6% while losing 8%, he made a poor investment. He is losing 2% per year.
Using the same compounding calculator with a -2% growth, compounded annually, the real dollar amount (measured in the same value as the dollars he began with) is $1362.47.
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The only college funds worth doing are those that lock in tuition at the current rate. Many states have these -- you start putting money in and it's a guaranteed tuition. Considering how quickly tuition has been rising in the last twenty years, far outpacing inflation and cost of living, that may be a good idea.
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