Question

I want to have $50,000 for my daughter’s college in 18 years. If I can afford to put away $1500 a year, what interest rate would I need to get?

Answer 1

Answer:

Rate of interest will be equal to 21.5 %

Explanation:

We have given future value A = $50000

Time period n = 18 years

It is given that he can afford to pay $1500 a year

So principal amount P = $1500

We have to find the rate of interest

We know that amount is given by

$A=P(1+\frac{r}{100})^n$

So $50000=1500(1+\frac{r}{100})^{18}$

$33.33=(1+0.01r)^{18}$

$(1+0.01r)=(33.33)^{\frac{1}{18}}$

$(1+0.01r)=1.215$

$0.01r=0.215$

$r=21.5$ %

So rate of interest will be equal to 21.5 %