Mr. and Mrs. Johnson are each 35 years old. They have finally paid off their student loans and have made some progress on saving for the cost of college for their two children (twins who are each 8 years old) and for their retirement. As of today, they have $25,000 saved for college cost (in total for the twins) and they have (combined) $100,000 saved for retirement. The twins are expected to enter college 10 years from now. The Johnson's would like to have the full amount available to fully fund 4 years of college when the twins enter their freshman year (10 years from today). The Johnson's examined the cost of college today and decided that in today's dollars $30,000 per year per child is a reasonable starting point. They realize that over the next 10 years the cost of college will increase so you decide to use 4% as an annual cost escalation factor. The Johnson's $25,000 in the existing college investment fund has so far averaged an annual rate of return of 6% and since they are comfortable with the investment mix you decided to make the assumption that over the next 10 yearst the average annual rate of return will continue at 6%. To make your model easier, you will multiply the annual cost you calculate for the Freshman year by 4 to get the total cost per child for 4 years and then multiply by 2 to get the total amount needed for the twins. The Johnsons realize that they will need to add additional dollars to the college investment account. Part of your required calculations is the amount that they need to invest annually, at the end of each of the 10 years until the Freshman year begins so that they accumulate the full amount needed to fully fund the four years for each child by the time the Freshman year begins. Remember that they are starting with $25,000. All of their invested college monies will earn an average annual return of 6%. Mr. and Mrs. Johnson are each 35 years old. They have finally paid off their student loans and have made some progress on saving for the cost of college for their two children (twins who are each 8 years old) and for their retirement. As of today, they have $25,000 saved for college cost (in total for the twins) and they have (combined) $100,000 saved for retirement. The twins are expected to enter college 10 years from now. The Johnson's would like to have the full amount available to fully fund 4 years of college when the twins enter their freshman year (10 years from today). The Johnson's examined the cost of college today and decided that in today's dollars $30,000 per year per child is a reasonable starting point. They realize that over the next 10 years the cost of college will increase so you decide to use 4% as an annual cost escalation factor. The Johnson's $25,000 in the existing college investment fund has so far averaged an annual rate of return of 6% and since they are comfortable with the investment mix you decided to make the assumption that over the next 10 yearst the average annual rate of return will continue at 6%. To make your model easier, you will multiply the annual cost you calculate for the Freshman year by 4 to get the total cost per child for 4 years and then multiply by 2 to get the total amount needed for the twins. The Johnsons realize that they will need to add additional dollars to the college investment account. Part of your required calculations is the amount that they need to invest annually, at the end of each of the 10 years until the Freshman year begins so that they accumulate the full amount needed to fully fund the four years for each child by the time the Freshman year begins. Remember that they are starting with $25,000. All of their invested college monies will earn an average annual return of 6%
