Question

You hope to go to graduate school, and the tuition will be $50,000 for the one-year M.B.A. program. If you can only afford to save $3,000/quarter and the interest rate is 9%, how long will you need to save?

Answer 1

Answer

10.63 Quarters

Explanation

FV = $50,000

PMT = $3,000 per quarter

r = 9% / 4 = 2.25% per quarter

N = ??

We would use the future value ordinary annuity formula to calculate N ( The number of quarters)

FV = PMT $[\frac{(1+r)^{N} -1}{r} ]$

50000 = 3000 $[\frac{(1+0.09)^{N} -1}{0.09} ]$

($\frac{50000}{3000}$ x 0.09 ) + 1 = $1.09^{N}$

$1.09^{N}$ = 2.5

N ㏑1.09 = ㏑2.5

N = ㏑2.5 / ㏑1.09

N = 10.63 Quarters