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Homework answers / question archive / You set up a college fund in which you pay $4500 each year at the beginning of the year
You set up a college fund in which you pay $4500 each year at the beginning of the year. How much money (in $) will you have accumulated in the fund after 21 years, if your fund earns 11% compounded annually?
We can use the Future value (FV) of annuity due formula because we assume that the deposits made at the beginning of each year
FV = PMT*(1+i) *{(1+i) ^n−1} / i
Where,
FV of the deposits after 21 years =?
PMT = annual deposit = $4500
n = N = number of payments = 21
i = I/Y = interest rate per year = 11%
Therefore,
FV = $4500*(1+11%) *{(1+11%) ^21−1} / 11%
Or FV = $360,964.39
Future value of deposits will be $360,964.39
