Respuesta :
If the annual cost of a college education is expected to be $30,000 when your child enrolls in college in 18 years, you must earn 8.87% in annual rate on your investment to cover the cost of their first year.
Let's assume your child has just been born.
So time t = 18 years
Future value (annual cost) = $30,000
Present Value P = $6500
rate of interest r=?
F=P*(1+r)^t
30000 = 6500* (1+r)^18
(1+r)^18 = 30000/6500
(1+r)^18 = 300/65
1+r = (4.615)^(1/18)
1+r = 1.08868
r = 0.08868
r = 8.87%
hence annual rate should be 8.87%
The term annual rate describes the annual interest that is produced by a payment that is owed to investors or levied to borrowers. The annual percentage rate, or APR, is a measure of the real cost of borrowing money over the course of a investment loan or the income generated by an investment. This includes any fees or other expenditures related to the transaction, but does not account for compounding. Consumers may investment compare lenders, credit cards, and investment goods using the annual rate which gives them a concrete number to work with.
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