Suppose that a family wants to start a college fund for their child. If you invest in an account that pays 5.5% and want the fund to have a value of $53,000 after 18 years, how much should you deposit monthly? Assume an annuity due.

For monthly deposits, use a monthly interest rate of 0.055 ÷ 12 and 18 × 12 = 216 deposits. Because this is an annuity due, each deposit earns interest for one extra month: $53,000 = payment × [((1 + 0.055/12)^216 − 1) ÷ (0.055/12)] × (1 + 0.055/12). Solving gives a monthly deposit of about $143.49, which is choice c.

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