Part 1: Planning Aheadwith Compound Interest

Scenario: Suppose you have a new baby. You estimate that you need $ 100,000 for their college education when they are ready to go to college in 18 years.

1. Assume you invest $10,000 in a mutual fund (e.g. money market fund) atan APR of 7% compounded quarterly. How long, to the nearest tenth of a year, will it take the $10,000 to grow to $100,000?[Solve using both methods below.]

Solve using Logarithmic Equations Number of Years (nearest tenth): _________________

Solve using the TI-84 TVM Solver N = _______________ I % = ______________ PV = ______________ (use a negative sign at the front of the number) PMT = _____________ FV = ______________ P/Y = _____________ C/Y = _____________ PMT (set at End) Number of Years (nearest tenth) (5 pts.): _________________

2. At the end of 18 years, will your investment have grown to the $100,000 needed for your childs college fund? Explain youre your answer means, in terms of the stated goal, using the answer in #1 above.

3. Explain (show your work), how you might use one of the two methods above, to determine exactly how much money needs to be invested at 7%, compounded monthly, so your child has a college fund of $125,000 in 18 years.