Question

Eighteen years from now, 4 years of college are expected to cost $150,000. How much more must be deposited into an account today to fund this expense if you can earn only 8% on your savings rather than the 11% you hope to earn

Answer 1

Answer:

$14,614.02

Explanation:

The computation of the much more amount deposited is shown below:

= Expected cost ÷ (1 + interest rate on savings)^number of years - Expected cost ÷ (1 + interest rate on earnings)^number of years

= $150,000 ÷ (1 + 0.08)^18 - $150,000 ÷ (1 + 0.11)^18

= $37,537.35 - $22,923.33

= $14,614.02

We simply deduct the earning from the savings so that the approximate valeu could come