Assume the total cost of a college education will be $345,000 when your child enters college in 18 years. You presently have $73,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child’s college education?

9.01

Explanation:

GIVEN the following ;

Period(t) = 18

Present value(PV) = $73,000

Future Value(FV) = $345,000

To calculate the rate of interest in other to attain a future value of $345,000 with a Present value of $73,000 in the next 18 years.

Recall:

Rate(r) = [ (FV/PV)^1/t] - 1

r = [ ($345,000/$73,000)^1/18 ] - 1

r = [(4.72602739726)^1/18] - 1

r = 1.0901142 - 1

r = 0.0901

r = 0.0901 or 9.01%

Rate of interest on the investment should be 9.01%

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