Billy and Kathy Garcia have two children, Jerome and Sally ages 4 and 2. The Garcias would like to save for their children's education. They plan to send the children to the local university which currently costs $13,000 per year in tuition and fees for up to 5 years. Education inflation is expected to be 7% and the Garcias are able to earn a 10.5% return on their investment. Assume the children plan to begin college at age 18 and that the Garcias would like to save enough at the end of the year to fund their children's education by the time their oldest begins college.

Determine the present value of the education obligation and the annual savings required to reach the goal using:

1. Uneven cash flow method

2. Traditional method

3. Account Balance method

For methods 2 and 3, determine each childs education funding separately and sum at present.

4. How does the goal change if the Garcias only pay for 4 years of education?

5. How does the savings amount change if they save at the start of the year (assume 5 years)? (For 4 and 5, you only need to use one of the calculation methods)