Suppose George and Marilyn were to ask you for financial advice. In considering the questions below, assume that George and Marilyn’s investments will be placed in mutual funds and that it is reasonable to assume that these funds will earn 4.0% per year for the next 17 years. Assume also that the rate of inflation is expected to be 2.5% per year for the next 17 years.

1. George and Marilyn plan to place the same number of dollars into Natalie’s college fund each year, making their first payment into the fund one year from now. What is the minimum annual amount they need to place in the fund to meet their objectives for the fund?

2. Now consider George and Marilyn’s home mortgage loan.

(a) What is their current monthly payment for principal and interest?

(b) How much will they owe in May, after they make their 60th monthly loan payment?

(c) How much will their monthly payment be if the interest rate adjusts to 4.75%?

(d) How much will their monthly payment be if they refinance their outstanding balance in May at 3.625%?

(e) What would you recommend to George and Marilyn? Should they keep their existing loan, for now anyway, or refinance at 3.625% in May?