Lucy and Fred want to begin saving for their baby's college education. They estimate that they will need $150,000 in eighteen years. If they are able to earn 6% per annum, how much must be deposited at the beginning of each of the next eighteen years to fund the education?
A) $4,853.
B) $4,579.
C) $8,333.
D) $4,443.

Question

Quizplus · Accepted Answer

To calculate the amount that needs to be deposited each year, we can use the formula for the present value of an annuity:

A = R * [(1 - (1 + i)^-n) / i]

Where:
A = $150,000 (the future value)
R = amount to be deposited each year
i = 6% per annum = 0.06
n = 18 years

Plugging in the numbers, we get:

$150,000 = R * [(1 - (1 + 0.06)^-18) / 0.06]

Solving for R, we get:

R = $4,579.16

Therefore, Lucy and Fred must deposit $4,579.16 at the beginning of each of the next eighteen years to fund their baby's college education. Answer: B.

Lucy and Fred Want to Begin Saving for Their Baby's