Question

John Smith has a grandson, Joey, who just turned eight. His grandson wants to go to UMBC in the Fall of 2029. Mr. Smith would like to be able to give his grandson he can invest monthly in an extremely safe investment and earn 6 % on his investment. Using the appropriate tables, Present value, Future value, Present Value of an Annuity or Future Value of an Annuity calculate the amount of Mr. Smith's monthly investment beginning August 1, 2019.

Answer 1

We can use the future value of annuity due formula to calculate the Mr.Smith's monthly investment as investment
is the at the beginning of each month starting from 1st August 2019.
Future value of annuity due = (1+r) x P x {[(1+r)^n -1]/r}
Future value of annuity due = $15000
r = interest rate on investment per month = 6%/12 = 0.005
P = monthly investment = ?
n = number of monthly investment i.e.from 1st Aug 2019 to 31st Dec.2029 = 125 months
15000 = (1+0.005) x P x {[(1+0.005)^125 -1]/0.005}
15000 = 1.005 x P x 173.07
15000 = 173.93 x P
P = 86.24
Mr.Smith's monthly investment = $86.24