Question

Lisa will begin college in 15 years and will have to pay $35,000 at the beginning of each of her four years in college. Her parents start saving money for college by investing $X at the end of each of the next 15 years so that the money in the account after 15 years will be enough to pay for all of Lisa’s college costs. Assume the annual effective rate of interest of 3.5%. Calculate $X.

Answer 1

Answer:

$1,813.88

Explanation:

To find this answer, we use the future value of an annuity formula:

$FV = X [(1 + i)^{n} -1] /i$

Where:

• FV = Future Value
• X = Value of annuity payments (the variable we will find)
• i = Interest Rate
• n = Number of Compounding Periods

Now, we simply plug the values into the formula, and solve:

$35,000 = X [(1 + 0.035)^{15} -1]/0.035\\35,000 = X (19.29568088)\\\\\frac{35,000}{19.29568088} = X\\\\1813.88 = X$