(a) Harry receives $3000 in interest income annually from a trust fund set up by his deceased father’s estate. The amount will never change. What will be the buying power of $3000 in ten years if inflation rises at 3 percent a year?
(b) Belinda and Harry have discussed starting a family but decided to wait for perhaps five years in order to get their careers off to a good start and organize their personal finances. They also know that having children is expensive. They figure that the extra expense of a child would be about $5000 annually until high school graduation. How much money will they likely cumulatively spend on a child over 18 years assuming a 3 percent inflation rate?

Throughout this book, we will present a continuing narrative about Harry and Belinda Johnson. Following is a brief description of the lives of this couple. Harry graduated with a bachelor’s degree in interior design last spring from a large Midwestern university near his hometown. Belinda has a degree in information technology from a university on the West Coast and is employed in a medium-size public relations firm. Harry and Belinda both worked on their school’s student newspapers and met at a conference during their junior year in college. They were married last June and live in an apartment in Kansas City. They will face many financial challenges over the next 20 years, as they buy their first home, decide on life insurance needs, begin a family, change jobs, and invest for retirement.