SOLUTION: 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 sh

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Question 1208775: 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 ​$89,000 in 13 ​years?
Question content area bottom
Part 1
You should invest ​$
  
​(Do not round until the final answer. Then round to two decimal places as​ needed.)
Answer by ikleyn(52775) About Me  (Show Source):
You can put this solution on YOUR website!
.
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?
~~~~~~~~~~~~~~~~~~~~~ 

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 = P%2A%28%28%281%2Br%29%5En-1%29%2Fr%29,    


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 = FV%2A%28r%2F%28%281%2Br%29%5En-1%29%29.     (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 = 89000%2A%28%28%280.07%2F12%29%29%2F%28%281%2B0.07%2F12%29%5E%2813%2A12%29-1%29%29 = 351.3193,


which we round to rounded to closest greater cent  $351.32.


Answer.  The necessary monthly deposit value is $351.32.

Solved.