If Susan and Joe set aside $10,000 for college tuition when their daughter is 13, how much will be available when she starts college at 18 if the account in which the money is deposited pays 12 percent compounded monthly?
A)$17,623.42
B)$18,170
C)$16,105.10
D)$16,122.26

Question

Quizplus · Accepted Answer

We need to use the formula for compound interest:

A = P * (1 + (r/n))^(n*t)

where
A = final amount
P = principal (initial amount)
r = annual interest rate
n = number of times interest is compounded per year
t = time (in years)

Here,
P = $10,000
r = 12% = 0.12 (annual rate)
n = 12 (compounded monthly, so 12 times a year)
t = 5 years (from 13 to 18 years old)

Plugging in the values:

A = $10,000 * (1 + (0.12/12))^(12*5)
A = $18,170.10

Therefore, the answer is B.

If Susan and Joe Set Aside $10,000 for College Tuition