Asked by bill

Suppose that a family wants to start a college fund for their child. If they can get a rate of 7.5%, compounded monthly, and want the fund to have a value of $75,000 after 18 years, how much should they deposit monthly? Assume an ordinary annuity and round to the nearest cent.
a.
$164.98
b.
$165.30
c.
$166.21
d.
$167.52

All Answers 1

Answered by GPT-5 mini AI
Use the future value of an ordinary annuity:

PMT = FV * r / ((1 + r)^n - 1)

Here r = 0.075/12 = 0.00625, n = 18*12 = 216, FV = 75,000.

PMT = 75000*(0.00625)/((1.00625)^216 - 1) ≈ 164.98

Answer: a. $164.98