Question
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 | |||
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