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February 24th, 2015, 02:55 PM   #1
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Power of Compounding

A professor's daughter is now at a private college that costs \$30,000 per year. When she was born, her grandparents put \$10,000 in a college fund for her, investing it in a mutual fund that has had an average annual return of 18% for the past 18 years. Ignore the year to year fluctuations of the return. Does she have enough money in her account for four years of college expenses if she entered college at 18 years of age?

Last edited by skipjack; February 24th, 2015 at 06:18 PM.
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March 11th, 2015, 06:55 AM   #2
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Money in the fund when she starts college = $\displaystyle \$10000 \times 1.18^{18} = \$196733$

Cost of four years of college = $\displaystyle 4 \times \$30000 = \$120000$

So yes, she will have enough.
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March 11th, 2015, 07:04 AM   #3
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Can I get in on that mutual fund?
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