QUE 1 //

Lucinda Diamanti is 10 years old today (August 15th) and while all shes interested in is her new bike, her parents Mr. & Mrs. Diamanti are considering how they will pay for her college education beginning in 8 years. They decide to set up a meeting with their financial adviser Cindy Morgan to discuss an education savings plan. During the meeting, the Diamantis inform Cindy that they have $8,000 they can use to begin the savings plan, and from what they can determine, Lucinda will require 4 years to complete her undergraduate degree in molecular biology. Cindy consults a reputable college reference to see that tuition costs are currently estimated at $32,000 per year and are expected to grow at 4% each year for the foreseeable future. The Diamantis are concerned that they wont have enough money and ask Cindy how to make sure they have enough to completely pay for Lucindas undergraduate education. The Diamantis inform Cindy that they want to make deposits into the education savings plan on an annual basis until Lucindas first year in college at which point they will stop making contributions. Cindy tells them they can earn 8% annual interest on their savings plan. Your job to answer the following two questions (You may assume there are 8 years between today and the beginning of Lucindas first day in college):

Assuming the estimates on tuition costs are correct, how much money needs to be in the account when Lucinda begins college in 8 years to fund 4 years of college? Round your answer to a whole number. (No $ signs, commas, or decimal points). 1a)

How much money do the Diamantis need to deposit annually in order to reach their goal to fund Lucindas education fully? Remember that the Diamantis have $8,000 to invest today. Round your answer to a whole number. (No $ signs, commas, or decimal points)

1b)

Please use the following facts to analyze this nest two questions:

Assume you just received a bill for services you and have the following two payment options:

Option 1:

Pay the entire bill of $600 now

Or

Option 2:

Pay:

$130 now

And

$130 for each of the next 4 months

1c)

What annual interest rate (APR) are you paying if you choose Option 2? Assume monthly compounding. Round you answer to the nearest two decimal points. Do not use $, commas or %. For example, 25.34% would be entered as 25.34

What Effective Annual Rate are you paying if you choose Option 2? Assume monthly compounding. Round you answer to the nearest two decimal points. Do not use $, commas or %. For example, 25.34% would be entered as 25.34.