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November 2nd, 2011, 11:40 AM   #11
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Re: A simple Interest question...or not ?!?

Okay, I'm going to chew on your explanation for a bit. I think I get it and yes I understand the formulas and calculations for the basic PV and FV questions and also performing compound interest calculations. But I struggle with things if they stray too far from the basic formulas. It's been years since I've done math and I'm having to relearn a few things. E.g. How to rearrange a formala to solve for its various unknowns.

Thanks so much. I might come back if I'm still not getting it. This forum is really inspiring.
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November 2nd, 2011, 11:42 AM   #12
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Re: A simple Interest question...or not ?!?

Denis, that is correct. You assement of the question is accurate.
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November 2nd, 2011, 11:47 AM   #13
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Re: A simple Interest question...or not ?!?

Quote:
Originally Posted by lkpegger
Okay, I'm going to chew on your explanation for a bit. I think I get it and yes I understand the formulas and calculations for the basic PV and FV questions and also performing compound interest calculations. But I struggle with things if they stray too far from the basic formulas.
Heh. I have the opposite problem: I don't know almost anything about finance. I can solve any equation of this sort and have good intuition as to what needs to be done to solve a problem, but the terminology of the field and the standard formulas are unknown to me.
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November 2nd, 2011, 06:36 PM   #14
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Re: A simple Interest question...or not ?!?

Ok, here's what you need to do; I'll let you figure out why the formulas work!

Step 1 ; get T (1st year's tuition expense):
T = 3000(1.04)^5 = 3649.96

Step 2 ; get A (amount required to permit tuition for 4 years):
Let K = 1.04 / 1.06
A = [TK(1.04^3) / (1.06^4) - T / 1.06] / (K - 1) = 13388.50

Step 3 ; get D (required annual deposit to accumulate to A):
D = .06A / (1.06^5 - 1) = 2375.07
(using annual instead of monthly cause I'm lazy!)

The account will look like this:

Code:
0                                 .00
1   2,375.07         .00     2,375.07
2   2,375.07      142.50     4,892.64
3   2,375.07      293.56     7,561.27
4   2,375.07      453.69    10,390.03
5   2,375.07      623.40    13,388.50
6  -3,649.96      803.31    10,541.85
7  -3,795.95      632.51     7,378.41
8  -3,947.80      442.70     3,873.31
9  -4,105.71      232.40          .00
You're welcome
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