2.

Joe and Jane are interested in saving money to put their two children,

John and Susy through college.

John is currently 10 years old and will

enter college in eight years.

Susy is 7 years old and will enter college

in 11 years.

Both children plan to finish college in four years.

College costs are currently $15,000 a year (per child), and are expected to increase at 6 percent a year for the foreseeable future. All college costs are paid at the beginning of the school year.

Up until now, Joe

and Jane have saved nothing but they expect to receive $25,000 from a favorite uncle in three years.

To provide for the additional funds that are needed, they expect to make 12 equal payments at the beginning of each of the next twelve years--the first payment will be made today and the final payment will be made on Susy's 19th birthday (which is also the day that the last payment must be made to the college).

If all funds are invested in a stock fund which is

expected to earn 12 percent, how large should each of the

annual

contributions be?