At your child's birth, you begin contributing monthly to a college fund. The fund pays an APR of 4.8% compounded monthly. You figure your child will need $40,000 at age 18 to begin college. What monthly deposit is required?

Question

anonymous · Answer

do you have a formula for this? i do not know it, and probably can't derive it from scratch, but it must be in your text somewhere (i hope)

anonymous · Answer

My biggest struggle is deciding which formula to use. My guess is the compound interest formula which I do have in my notes.

anonymous · Answer

i don't think so because you are making monthly payments

anonymous · Answer

Simple then?

anonymous · Answer

oh no, the interest keeps accruing

anonymous · Answer

there must be some formula for compounding interest and monthly payments, it comes from summing a geometric series, but like i said i don't know it

anonymous · Answer

Yeah, I have all the formulas no problem...hardest part is just figuring out which one to use, haha.

anonymous · Answer

find one with monthly payments, then we can stick the numbers in the right spot

anonymous · Answer

Honestly, I think this is my professors mistake. I don't think we have learned this material yet. Don't worry about it, thanks anyways!

anonymous · Answer

ok sorry

anonymous · Answer

no worries!!!

anonymous · Answer

btw answer is about $125 using an on line calculator, guessing and checking

anonymous · Answer

http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

jim_thompson5910 · Answer

You will use the future value of annuity formula http://www.financeformulas.net/Future_Value_of_Annuity.html

anonymous · Answer

Thanks Jim! I have that formula :) @jim_thompson5910

jim_thompson5910 · Answer

ok great, you're welcome