Question

1. Jesse estimates that it will cost $300,000 to send his newborn son to a private college
in 18 years. He currently has $65,000 to deposit in an account.
a. What simple interest rate would he need so that $65,000 grows into $300,000
in 18 years? Round to the nearest percent. 20%
b. How much would the account earn in three years if the interest was
compounded yearly?
I
C. Look at the table below showing activity for five months. Fill in the missing
information showing the account compounded monthly.

Answer 1

Jesse would need a simple interest rate of 20.09% so that $ 65,000 grows into $ 300,000 in 18 years. In turn, if the interest was compounded yearly, the account would earn $ 47,572.90 in three years.

Given that Jesse estimates that it will cost $ 300,000 to send his newborn son to a private college in 18 years, and he currently has $ 65,000 to deposit in an account, to determine what simple interest rate would he need so that $ 65,000 grows into $ 300,000 in 18 years, and how much would the account earn in three years if the interest was compounded yearly, the following calculations must be performed:

• 65,000X = 300,000
• X = 300,000 / 65,000
• X = 4.6154
• (4.6154 - 1) / 18 = X
• 0.20085 = X
• 0.20085 x 100 = 20.0855

Therefore, he would need a simple interest rate of 20.09% so that $ 65,000 grows into $ 300,000 in 18 years.

• 65,000 x 1,2009 x 1,2009 x 1,2009 = X
• 78,058.5 x 1.2009 x 1.2009 = X
• 93,740.45 x 1.2009 = X
• 112,572.90 = X
• 112,572.90 - 65,000 = 47,572.90

Therefore, if the interest was compounded yearly, the account would earn $ 47,572.90 in three years.

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