The Hartman family saves $400 monthly for Ronald's college education and expects to contribute $20,000 toward his first year, which is in 4 years. Which statement best explains whether the family will have enough money?

• A. They will likely be short by about $800.
• B. They will have exactly $20,000.
• C. They will be far short even with interest.
• D. They will likely have enough money.

Answer: (D)

Saving money over time grows because each deposit earns interest and interest compounds. The total in four years isn’t just 400 dollars times 48 months (which would be 19,200); the money already saved also earns interest, and that interest adds to the total over the years. Even with a modest interest rate, that extra growth pushes the future value above the simple sum.

For example, with about 2% annual interest compounded monthly, those 48 deposits of 400 would accumulate to roughly 20,000 or more. If the rate is higher, the amount grows even more. So while the no-interest calculation suggests a shortfall of 800, the reality of earning interest makes it likely they’ll reach or exceed 20,000, meaning they will likely have enough money for the first year.