Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A,B,C, and D! thanks! (Nonannual compounding using a calculator) Should we have bet the kids' college fund at the dog track? Let's look at one

A,B,C, and D! thanks! image text in transcribed

(Nonannual compounding using a calculator) Should we have bet the kids' college fund at the dog track? Let's look at one specific case of a college professor (let's call him Prof. ME) with two young children. Two years ago, Prof. ME invested $180,000 hoping to have $430,000 available 15 years later when his first child started college. However, the account's balance is now only $160,000. Let's figure out what is needed to get Prof. ME's college savings plan back on track. a. What was the original annual rate of return needed to reach Prof. ME's goal when he started the fund 2 years ago? b. Now with only $160,000 in the fund and 13 years remaining until his first child starts college, what APR would the fund have to earn to reach Prof. ME's $430,000 goal if he adds nothing to the account? c. Shocked by his experience of the past 2 years, Prof. ME feels the college mutual fund has invested too much in stocks. He wants a low-risk fund in order to ensure he has the necessary $430,000 in 13 years, and he is willing to make end-of-the-month deposits to the fund as well. He later finds a fund that promises to pay a guaranteed APR of 5.5 percent compounded monthly. Prof. ME decides to transfer the $160,000 to this new fund and make the necessary monthly deposits. How large of a monthly deposit must Prof. ME make into this new fund to meet his $430,000 goal? d. Now Prof. ME gets sticker shock from the necessary monthly deposit he has to make into the guaranteed fund in the preceding question. He decides to invest the $160,000 today and $400 at the end of each month for the next 13 years into a fund consisting of 50 percent stock and 50 percent bonds, and hope for the best. What APR would the fund have to earn for Prof. ME to reach his $430,000 goal? a. If Prof. ME invested $180,000 into a fund 2 years ago and hoped to have $430,000 available 15 years later when his first child started college, what was the original APR needed to reach his goal? % (Round to two decimal places.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions