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Sherwin wants to attend a two-year college with an annual tuition of $6,425. For his savings plan, he invested $5,000 in an account that earns 3.75% interest He deposits an additional $100 per month for four years. What is the difference between his two-year tuition and the value in his savings account?

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Answer:

Instructions are below.

Step-by-step explanation:

Giving the following information:

Total tuition= 6,425*2= $12,850

First, we need to calculate the future value of the initial investment:

FV= PV*(1+i)^n

PV= 5,000

n= 4*12= 48

i= 0.0375/12= 0.003125

FV= 5,000*1.003125^48

FV= $5,807.81

Now, the future value of the monthly deposit:

FV= {A*[(1+i)^n-1]}/i

A= monthly deposit

FV= {100*[(1.003125^48) - 1]} / 0.003125

FV= $5,170

Total FV= 5,807.81 + 5,170= $10,977.81

Finally, the difference:

Difference= 10,977.81 - 12,850= -$1,872.19

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