Matt and Debra Baxter live in an upscale neighborhood in Orem, Utah. Matt is a partner in the family owned business. Debra stays home with their child, Brady, who is age 5. After visiting with their financial planner, the couple became concerned that they were spending too much and not putting enough funds aside for Brady's future educational needs. Matt earns $85,000 per year, but with the rising costs of education, they are concerned. Matt is an alumni of Duke University, a prestigious school with tuition and book expenses of approximately $18,000 per year. Debra graduated from Utah Valley University. The expense for tuition and books there is estimated at about $8,000 per year. When Brady turns 18, the couple wishes to send him to one of these two exceptional universities. They have a slight preference for Utah Valley University. The problem, however, is that with the rate at which tuition is increasing the Baxter's are not sure they can save enough money and they have decided they do not want to borrow to pay for Brady's education. Assume the tuition at both universities will increase at an annual rate of 5% from now until Brady starts college. S Living expenses are currently estimated to be $9,000 per year at both schools. This expense is expected to increase at only 3% per year. Further, assume that Baxter's oriented mutual fund which has historically carned 12% per annum. deposit their money into a growth s can The couple wishes to save by having a pre-determined amount automatically withdrawn from their bank account at the end of each month. They plan to contribute from now until Brady starts college. When Brady starts college, at the beginning of his freshman year, they will stop making contributions. They want to have enough in their account when Brady starts college so the principle and interest will cover all four years of his college expenses. They will make annual withdrawals from the account to cover both tuition and living expenses for Brady at the beginning of his freshman, sophomore, junior, and senior years. When the withdrawal for the senior year is made the account balance will be zero. Complete a thorough analysis and write a professional letter to the Baxter's (who don't understand finance) explaining the analysis you performed, why you performed it, and the results and conclusions. In the letter and attached schedules provide information that answers the following questions. When Brady is 18, what will be the tuition expense, living expense, and total expense for each of the four years that Brady will attend college? Provide the information for each University What amount will be needed in the account when Brady starts his freshman year if he attends Duke? What amount if he attends UVU? When Brady is 18, what will be the tuition expense, living expense, and total expense for each of the four years that Brady will attend college? Provide the information for each University. What amount will be needed in the account when Brady starts his freshman year if he attends Duke? What amount if he attends UVU? How much money will Matt and Debra have to deposit at the end of each month to allow Brady to attend Duke? How much money will have to be deposited per month to allow Brady to attend Utah Valley University? Assume that Matt and Debra stop making deposits when Brady starts college. The Baxter's are concerned that given the current market performance the mutual fund will only ear 9% per year. Redo the analysis assuming they can earn only 9 % per year on their investments. How much will be needed in the account when Brady starts college and how much will have to be deposited per month for Brady to have sufficient funds to attend each school
