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 1119120: 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 16 years?
You should invest $_____each month.
Answer by Theo(13342) (Show Source):
You can put this solution on YOUR website!
present value = 0
future value = 89,000
number of months = 16 * 12 = 192
interest rate per month = (7/12)% = .58333333%.
payments are made at the end of each month.

stick those inputs into the financial calculator and click on PMT.

the calculator will tell you that the monthly deposits are $252.65.

you can use manual formulas as well.
when using the formulas, the interest rate is in decimal form and not in percent form.
therefore .583333 would be entered either as .07/12 or .00583333
.07/12 is more accurate, since the division leads to an endlessly recurring fraction.
however, rounded to 6 decimal places is usually sufficient to get an answer rounded to 2 decimal places.

here are the results from the online financial calculator that i used.

here's where that calculator can be found.

https://arachnoid.com/finance/

the manual formula that i would use is shown below:

ANNUITY FOR A FUTURE AMOUNT WITH END OF TIME PERIOD PAYMENTS
a = (f*r)/((1+r)^n-1)
a is the annuity.
f is the future amount.
r is the interest rate per time period.
n is the number of time periods.

my entries would be a = (89000*.07/12)/((1+.07/12)^192-1)

that results in a = 252.6484713 which is equal to 251.65 when rounded to 2 decimal places.