The Millers have decided to deposit $10,000 a year into a savings account for their daughter's college education. She is now five years old. How much will their daughter have for college at age 18 if the account earns 8%?
A)$79,038
B)$214,953
C)$27,196
D)$232,149

Question

The Millers have decided to deposit $10,000 a year into a savings account for their daughter's college education. She is now five years old.   How much will their daughter have for college at age 18 if the account earns 8%?
A)​$79,038
B)​$214,953
C)​$27,196
D)​$232,149

Quizplus · Accepted Answer

This is a future value of an annuity problem. Using the formula:

FV = PMT x [(1 + r)^n - 1] / r

where FV is the future value, PMT is the annual payment, r is the interest rate, and n is the number of periods.

In this case, PMT = $10,000, r = 8%, and n = 13 (from age 5 to age 18).

FV = $10,000 x [(1 + 8%)^13 - 1] / 8% = $214,953.

Therefore, the daughter will have $214,953 for college at age 18.

The Millers Have Decided to Deposit $10,000 a Year into a Savings