Question

A couple wants to have $80,000 for their daughter to go to college in 15 years from now. How much money should they put in the bank monthly, if they are getting 6% annual interest compounded monthly? Draw the cash flow diagram a) b) What should be the amount of uniform deposit done monthly?

Please show all work in legible writing, thank you

Answer 1

Total months = 15 * 12 = 180 months

i = 6% = 6% / 12 = 0.5% per month

Monthly deposit = 80000 * (A/F, 0.5%,180)

= 80000 * 0.005 / ((1 + 0.005)^180-1)

= 80000 * 0.005 / ((1.005)^180-1)

= 80000 * 0.003439

= 275.08

CFD

Withdrawal of 80000 at the end of 180 months i = 0.5% per month 275 deposit per month for 180 months