Nancy's parents loaned her $80, 000 to fund her college education.Her parents are not charging interest.They desire to be paid in one lump sum of $80, 000 when Nancy can accumulate that amount.Nancy established a savings plan that earns 8% compounded annually.Her new job promises to pay an annual holiday bonus that will enable her to make equal annual, year-end deposits of $6, 400.Approximately how many years will it take Mary to accumulate the desired $80, 000?

Question

Quizplus · Accepted Answer

To find out how many years it will take Nancy to accumulate $80,000, we can use the future value of an annuity formula: $FV = P \times \left( \frac{(1 + r)^n - 1}{r} \right)$, where FV is the future value, P is the annual payment, r is the annual interest rate, and n is the number of years. Rearranging the formula to solve for n, and substituting the given values ($80,000 for FV, $6,400 for P, and 0.08 for r), we can solve for n. Plugging the values into the formula and solving for n gives us approximately 9 years.

Nancy's Parents Loaned Her $80, 000 to Fund Her College