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M93 123456 7 8 00 C PROBLEM (6) SAVING FOR COLLEGE We need to save for our child's expected college costs. We have cash flow
M93 123456 7 8 00 C PROBLEM (6) SAVING FOR COLLEGE We need to save for our child's expected college costs. We have cash flow restrictions, so need to save/invest now so as to NOT have to borrow lots of money when she reaches 18. Each deposit happens at the day of each birthday (or you can treat it as the beginning of each year), since 10th birthday, till 18th birthday when we start to pay for the college (no deposit at the 18th birthday, i.e. the final deposit is on 17th birthday). We expect our investments to earn 8% over the next several years. The annual college cost is $20,000 for four years, at the beginning of each year. Answer: 9 Interest rate earned on investment 10 Interest rate charged on borrowing 11 Annual deposit 12 Annual cost of college A 3451671711 X fx 18 19 20 21 22 1. If we deposit $4,000 each year, how much money will be left in your accout or be owned to the bank at the beginning of 22th birthday, given a 10% interest rate your bank charges on your borrowing (i.e interest rate is 8% if your balance is positive, and interest rate is 10% if your balance is negative). Birthday B 10 11 12 13 14 15 16 17 18 8% 10% 4,000.00 20,000.00 Account balance on birthday, before deposit/withdrawal 0.00 D Deposit or withdrawal on each birthday/at beginning of year Account balance, E after deposit/withdrawal, at the beg. of year Account balance, End of year balance, with interest F 0.00 G IF(D14>=0, D14*(1+$B$9),D Hint: use if() function to take rate given wheter your accou each year is positive or negati formula in the cell of the first you understand why we use if situation by yourself.
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