Question
Please show calculations: Tom and Mary James just had a baby. They heard that the cost of providing a college education for this baby will
Please show calculations: Tom and Mary James just had a baby. They heard that the cost of providing a college education for this baby will be $100,000 in 18 years. Tom normally receives a Christmas bonus of $4,000 every year in the paycheck prior to Christmas. He read that a good stock mutual fund should pay him an average of 10 percent per year. Tom and Mary want to make sure their son has $100,000 for college. Consider each of the following questions: a. How much must Tom invest in this mutual fund at the end of each year to have $100,000 in 18 years? b. If the bonus is not paid until the first of the year, how much must Tom invest at the beginning of each year to have $100,000 in 18 years? c. Toms father said he would provide for his grandsons education. He puts $10,000 in a government bond that pays 3 percent interest. His dad said this should be enough. Do you agree? d. If Mary has a savings account worth $50,000, how much must she withdraw from savings and set aside in this mutual fund to have the $100,000 for her sons education in 18 years? e. If Mary has been advised to keep the $50,000 in her savings account earning 4 percent compounded monthly, how much additional money would she have to set aside in the stock mutual fund to have the $100,000 for her sons education in 18 years?
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