Hi There,

I got this question in a test wrong.

Suppose that a young couple has just had their first baby and they wish to ensure that enough money will be available to pay for their child's university education. They decide to make deposits into an educational savings account on each of their daughter's birthdays, starting with her first birthday. Assume that the educational savings account will return a constant 7%. The parents deposit $2 000 on their daughter's first birthday and plan to increase the size of their deposits by 5% each year. Assuming that the parents have already made the deposit for their daughter's 18th birthday, then the amount available for the daughter's university expenses on her 18th birthday is closest to:

The correct answer is $97 331 however I still don't know how to have worked it out and the lecturer glossed over the methodology even though most people got it wrong.

If you could let me know how I can work it out I want to be prepared in case one like this comes up in the actual exam.

Thanks.