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Consider establishing a college funds at a bank for a couple with a 5-year old child. The college funds will earn 8% interest (market rate),
Consider establishing a college funds at a bank for a couple with a 5-year old child. The college funds will earn 8% interest (market rate), compounded quarterly. Assuming that the child enters college at age 18, the couple estimate that an amount of $30,000 per year, in terms of todays dollars, will be required to support the childs college expenses for 4 years. The college expense is estimated to increase at an annual rate of 6% due to inflation. Determine the equal quarterly deposits the couple must make until they send their child to college. Assume that the first deposit will be made at the end of the first quarter after the childs 5th birthday and deposits will continue until the child reaches age 17. The child will enter college at age 18 and the annual college expense will be paid at the beginning of each college year. In other words, the first withdrawal will be made at age 18
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