Question

Assume the total cost of a college education will be $365,000 when your child enters college in 18 years. You presently have $59,000 to invest.

Required:

What annual rate of interest must you earn on your investment to cover the cost of your child’s college education? (Do not include the percent sign (%). Round youranswer to 2 decimal places (e.g., 32.16).)

Answer 1

Answer 2

Future value = present value * (1 + interest rate)^{number of years}

$365,000 = $59,000 * (1 + interest rate)¹⁸

interest rate = ($365,000 / $59,000)^1/18 - 1

interest rate = 0.1065, or 10.65%

The annual rate of interest you must earn is 10.65%