Monte Wants to Save for His Daughter's College Education

question 47

Essay

Monte wants to save for his daughter's college education.He would like to have $85,000 in 15 years.If Monte can earn an average of 8.5% on this fund,how much would he need to deposit in the account today to meet his goal?
If Monte has no money to set aside now but wants to save at the end of each month for this goal,how much would he need to add to the account each month?

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Definitions:

EAR

Effective Annual Rate, a comprehensive measure of the cost of borrowing on a loan or earning on an investment, taking into account the effect of compounding interest.

APR

Annual Percentage Rate; the annual rate charged for borrowing or earned through an investment, including any fees or additional costs associated with the transaction.

Loan

A sum of money that is borrowed, which must be paid back with interest, typically used for significant purchases, investing, or to cover cash flow shortfalls.

Balloon Loan

A type of loan that has low, fixed monthly payments for a period of time, followed by a large payment for the remaining amount due at the end of the term.