posted by Please, 1 last question! on .
The principal is $25,000. This is P.
Research the annual interest rate for your investment. This is r.
State the time in years for the investment (as in when the new grandchild will be attending college). This is t.
State the number of compounding periods per year. This is n.
Model the future value of Grandma’s investment as an exponential function, with time as the independent variable:
F(t) = P(1 + r/n) nt
State the future value of Grandma’s investment.
Use the internet or library resources to find the average cost of a college education today; will grandma’s investment be able to cover the cost in today’s dollars; what about in the future?
Summarize your findings in writing using proper style and grammar.
According to College Data the average college tuition for out of state students is around $20,000. According to Sallie Mae rates range from 3.29% APR – 9.48% APR Sallie, so I picked 5%.
Assuming the 25000 is invested when the child is born, and she attends college after 18 years, that gives n=1 t=18. Or other values, if compounded more frequently than annually.
You want an interest rate so that after 21 years (including the 3 years of attending college), the amount will be $80,000, enough to pay for 4 years of tuition at $20,000/year
80000 = 25000*(1+r)^21
3.2 = (1+r)^21
1.057 = 1+r
r = .057, or 5.7%
good answer, especially if you made other assumptions than mine.