Planning for the Future Sam and Sheila Gimble are determined that their newborn son Junior will attend
Question:
Planning for the Future Sam and Sheila Gimble are determined that their newborn son Junior will attend college. They expect the tuition for four years of college will be
$64,000 at the time Junior is ready to attend. Having just received a small inheritance from Sheila’s Aunt Tilley, they decide to set aside enough money in a savings account so they have the full amount of Junior’s tuition when he turns eighteen.
a. Assuming the savings account pays 6 percent annual interest, how much should Sam and Sheila set aside on the day Junior is born so they have enough for his tuition on his eighteenth birthday?
b. Assuming the interest rate will be 4 percent for the first eight years and then 6 percent until Junior turns eighteen, how much should Sam and Sheila put in Junior’s savings account?
c. Describe how your calculations would change if, instead of withdrawing all of the money on Junior’s eighteenth birthday, $16,000 is to be withdrawn each year for four years starting on Junior’s eighteenth birthday.
d. What timing of deposits and withdrawals would yield Junior the most money for college?
Step by Step Answer:
Financial Accounting A Decision Making Approach
ISBN: 9780471328230
2nd Edition
Authors: Thomas E. King, Valdean C. Lembke, John H. Smith