Suppose that you wish to save for your child's college education by opening up an educational IRA.You plan to deposit $100 per month into the SUPERANNUATION RA for the next 18 years.Assume that you will be able to earn 10%, compounded monthly, on your investment.How much will you have accumulated at the end of 18 years?

Question

Quizplus · Accepted Answer

To calculate the future value of a series of monthly deposits, we use the future value of an annuity formula: $FV = P \times \frac{(1 + r)^n - 1}{r}$, where $P$ is the monthly payment, $r$ is the monthly interest rate (annual rate divided by 12), and $n$ is the total number of payments (months). Here, $P = $100$, $r = \frac{10\%}{12} = \frac{0.10}{12}$, and $n = 18 \times 12 = 216$. Plugging these values into the formula gives us the future value of the educational IRA after 18 years. Calculating this, we find the future value to be approximately $60,056, making option D the correct answer.

Suppose That You Wish to Save for Your Child's College