College Tuition Investment Example
A grandmother is looking for a plan to finance her new grandchild’s college education. She has $45,000 to invest. Search the internet and locate a long-range investment plan, CD, Savings Bond, etc. for the grandmother. The plan is to earn compound interest.
Calculate the future value of the investment. You must use the advertised interest rate, the number of compounding periods per year, and the time the funds will be invested. If you are not given the number of compounding periods a year, use monthly compounding.
1. The principal is $45,000. This is P.
2. Research the annual interest rate for your investment. This is r.
3. State the time in years for the investment (as in when the new grandchild will be attending college). This is t.
4. State the number of compounding periods per year. This is n.
5. Model the future value of Grandma’s investment as an exponential function, with time as the independent variable: F(t) = P(1 + r/n) nt
6. Show all intermediate calculations and state the future value of Grandma’s investment.
7. Use the Internet or library resources to find the average cost of a college education today; will grandma’s investment be able to cover the cost in today’s dollars; what about in the future?
8. What other costs, besides tuition, might be incurred by the college-bound grandchild?
9. How much would grandmother have to invest, and at what compound interest rate and terms would the grandmother have to invest this money to fully cover the grandchild’s college experience? Show how you determined these values.
10. Summarize your findings in writing using proper style and grammar.