# annual contribution

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• Oct 7th 2008, 11:45 AM
mathie2004
annual contribution
Mr. Liang wishes to accumulate 100,000 in a college fund for his newborn daughter. He wishes the money to be available to her on her eighteenth birthday. The fund has an annual effective discount rate of 4%. If Mr. Liang plans to make equal annual contribution beginning on his daughter's first birthday and ending on her eighteenth birthday, calculate the size of the annual contribution.

Help im stuck on this assignment and i keep getting the wrong answer (it doesnt seem correct)
Can anyone help me, thank you
• Oct 7th 2008, 02:54 PM
Soroban
Hello, mathie2004!

We are expected to be familiar with Annuities . . .

Quote:

Mr. Liang wishes to accumulate $100,000 in a college fund for his newborn daughter. He wishes the money to be available to her on her eighteenth birthday. The fund has an annual effective interest rate of 4%. If Mr. Liang plans to make equal annual contribution beginning on his daughter's first birthday and ending on her eighteenth birthday, calculate the size of the annual contribution.$\displaystyle \text{Formula: }\;D \;=\;\frac{Ai}{(1+i)^n-1} \;\text{ where: }\;\begin{Bmatrix}D &=&\text{periodic deposit} \\ A &=& \text{final value} \\ i &=& \text{periodic interest rate} \\ n &=& \text{no. of periods} \end{Bmatrix}$We have: .$\displaystyle A = 100,\!000,\;\; i = 4\% = 0.04,\;\;n = 18$Therefore: .$\displaystyle D \;=\;\frac{100,\!000(0.04)}{1.04^{18}-1} \;=\;3899.332814 \;\approx\;\boxed{\$3899.33}$

• Oct 7th 2008, 03:10 PM
mathie2004
i c thanks alot for the help