Question

New parents wish to save for their newborn's education and wish to have $35,000 at the end of 17 years. How much should the parents place at the end of each year into a savings account that earns an annual rate of 7.6% compounded annually? (Round your answers to two decimal places.)
$  

How much interest would they earn over the life of the account?
$  

Determine the value of the fund after 10 years.

$

Answer 1

Future value of annuity= payment per period * [(1+i)^n-1]/i

i = interest rate per period

n = number of periods

=>

Future value = 35000

=>

payment * [(1+0.076)^17 - 1]/0.076 = 35000

=>

payment per year = 1075.26

b)

total interest earned = 35000 - 1075.26 * 17

= 16720.58

c)

value of fund after 10 years

=1075.26 * [(1+0.076)^10 - 1]/0.076

= 15284.03