MGF 1107

Conceptual Homework 4C
Show work to receive credit.

Suppose you just had your first child and you want to begin immediately putting away for
his/her college tuition. Assume that college will cost a total of $160,000 for all 4 year
combined and that your child will begin college at age 18.
1. How much will you need to put away each month at a rate of 4% in order to achieve
that goal?
= 160,000 x (0.04/12)
[(1+0.04/12)(12x18) -1]
= 160,000 x (0.0033333)
[(1.00333333)216 -1]
= 160,000 x (0.0033333)
1.05196010
= 160,000 x 0.00316865
= 506.984
I will need to put away $506.98 a month.

2. How much money will you have actually put into the account over the course of the 18
years?
506.98 x 12 = 6,083.76
6,083.76 x 18 = $109,507.68
I will put away $109,507.68 in the account.
3. How much did your investment actually earn you?
$160,000 – 109,507.68 = $50,492.32
The investment earned me $50,492.32
4. Do you think it was worthwhile to put the money into an investment account? Explain
your answer.
Yes, I think it was because instead of having to save up $160,000 of my own money I only had
to put $109,507.68 of my own money and the rest was gained through interest.