Question

Assume the total cost of a college education will be $345,000 when your child enters college in 18 years. You presently have $73,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child’s college education? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

Answer:

annual rate of interest =  9.01 %

Explanation:

given data

future value = $345,000

present value = $73,000

time period = 18 years

to find out

annual rate of interest

solution

we get here annual rate of interest that is express as

annual rate of interest = $(\frac{future\ value}{present\ value})^{\frac{1}{t} }$ - 1      ..................................1

put here value and we get annual rate of interest that is

annual rate of interest =  $(\frac{345000}{73000})^{\frac{1}{18} }$  - 1          

annual rate of interest =  9.01 %

Answer 2

The annual rate of interest you will must earn on your investment to cover the cost of your child’s college education is 9.01%

Given data

Future value = $345,000

Present value = $73,000

Ttime period = 18 years

Annual rate of interest = (Future value / Present value)^1/n  - 1

Annual rate of interest = ($73,000/$345,000)1/18  - 1          

Annual rate of interest = 9.01 %

In conclusion, the annual rate of interest you will must earn on your investment to cover the cost of your child’s college education is 9.01%

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