Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Steve is a newborn. His parents are planning to contribute $6,000 a year (or possibly less) towards his college fund into an account that will

Steve is a newborn. His parents are planning to contribute $6,000 a year (or possibly less) towards his college fund into an account that will grow at a constant rate of 5% a year. Both parents work for the same company that offered to match parental contributions dollar for dollar for the first 6 parental deposits and 25 cents for every parental dollar for subsequent parental deposits, until Steve reaches 19. Once he reaches 19, both the company and parents stop their contributions. College costs are expected to be $55,000 a year and Steve spends 4 years in college once he reaches 19. Assume that the beginning account balance is $35,000 (a) What is the smallest amount parents should contribute each year to make Steve's college affordable? Complete table below and solve the problem (15 points).

Inputs
Beginning Balance (at age 0) $35,000
Annual parental contribution
Interest rate 5.00%
Annual college cost $55,000
Account Deposit or withdrawal at Interest Total in
Steve's balance the beginning earned account
age beg. year of year during year end of year
0 $35,000.00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management

Authors: Rob Quail, Ricardo J. Rodriguez

2nd Edition

1557868441, 9781557868442

More Books

Students also viewed these Finance questions

Question

What is supply chain management? What is vertical integration?

Answered: 1 week ago

Question

Understand the department managers key role in employee retention

Answered: 1 week ago