Answered step by step
Verified Expert Solution
Question
1 Approved Answer
eBook A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university
eBook A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years, and she should graduate 4 years later Currently, the annual cost (for everything food, clothing, tuition, books, transportation, and so forth) is $16,000, but these costs are expected to increase by 7% annually. The college requires total payment at the start of the year. She now has $6,500 in a college savings account that pays 10% annually. Her father will make six equal annual deposits into her account; the first deposit today and sixth on the day she starts college. How large must each of the six payments be? (Hint: Calculate the cost (inflated at 7%) for each year of college and find the total present value of those costs, discounted at 10%, as of the day she enters college. Then find the compounded value of her initial $6,500 on that same day. The difference between the PV of costs and the amount that would be in the savings account must be made up by the father's deposits, so find the six equal payments that will compound to the required amount.) Do not round intermediate calculations. Round your answer to the nearest dollar. $
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started