question archive On the day your child is born, you open a college savings fund for him/her with an initial deposit of $5,000
On the day your child is born, you open a college savings fund for him/her with an initial deposit of $5,000
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On the day your child is born, you open a college savings fund for him/her with an initial deposit of $5,000. You want this account to be able to cover his/her entire tuition for 4 years of college. In 18 years, when your child is beginning to attend college, 4 years of college tuition will cost $360,000. The bank is giving you an interest rate of 2.5% compounded annually. How much will you need to deposit each month in the college savings account in order to have saved enough money for 4 years of his/her college tuition? Assume that you will make 1 payment equal to the entire amount of tuition in 18 years.
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we can use financial calculator for calculation of monthly deposit with below keystrokes.
N = no. of months = 18*12 = 216; I/Y = monthly interest rate = 2.5%/12 = 0.2083333333333333%; PV = present value = -$5,000; FV = future value = $360,000 > CPT = compute > PMT = monthly deposit = $1,292.63
PV needs to be entered as negative value and calculator will display PMT as negative value as well because both are cash outflows.
you will need to deposit $1,292.63 each month in the college savings account in order to have saved enough money for 4 years of his/her college tuition.
