You think that in 15 years it will cost $214,000 to provide your child with a 4-year college education. Will you have enough if you take $75,000 today and invest it for the next 15 years at 5%?
is 75000(1.05)^ 15 more or less than 214000 ?
it's more than 214000.
nope,
75000(1.05)^15
= 75000(2.0789..
= 155919.61 < 214000
so it would not be enough
Where are you getting the 1.05 from?
If you just use the Table of Future Value Factors, you'll see that 5% at 15 years is 2.079. Therefore, 75,000 * 2.079 = 155,925. I am really confused as to where the 1.05 comes from...
nevermind... it's the same as 5%. I get it.
To determine if you will have enough money after 15 years if you were to invest $75,000 today at an interest rate of 5%, we can use the compound interest formula.
The formula to calculate the future value (FV) of an investment with compound interest is:
FV = PV(1 + r)^n
Where:
FV = future value of the investment
PV = present value or initial investment
r = interest rate per period
n = number of periods
Given that you want to invest $75,000 for 15 years at an interest rate of 5%, we can substitute these values into the formula:
FV = $75,000(1 + 0.05)^15
Calculating this equation, we get:
FV = $75,000(1.05)^15
FV ≈ $151,469.89
Therefore, after 15 years of investing $75,000 at an interest rate of 5%, you will have approximately $151,470.
Comparing this amount to the projected cost of $214,000 for your child's college education, you will not have enough to cover the entire cost. There is a shortfall of approximately $62,530.
Keep in mind that this calculation assumes a fixed interest rate of 5% over the 15-year period, and does not account for variations in the rate or any additional contributions to the investment over time. It's important to consider other factors such as inflation and potential changes to the investment strategy when planning for long-term financial goals.