I want to have a college fund for my daughter. She is 5, so I have 13 years to achieve my goal of $50,000. The bank says I can earn 2%. I have $5000 already set aside. How much do I need to contribute every year?
From the values given and from mathematical manipulation, he or she needs a contribution of at least $2900 every year in order to achieve his goal of $50,000.
EXPLANATION
If the child is 5yr old now, in 13years time, she will be 18yr old.
$2950 target yearly
for the next 13years, it would have amount to $38350
remember the bank will give an annual interest rate of 2%
so for 13years, that's 26% = 0.26
In the 13th year, he would have saved $38350, add the 26% interest for the duration of 13years = 26% x $38350 + $38350 = $48321
His savings will fall between $2950 - $2960 yearly.
