Question
Suppose that a young couple has just had their first baby and they wish to ensure that enough money will be available to pay for
Suppose that a young couple has just had their first baby and they wish to ensure that enough money will be available to pay for their child's college education. The amount the couple placed in a college savings account for their daughter will be worth $97,332 on her 18th birthday. Suppose college tuition, books, fees, and other costs average $12,000 per year today. On average, these costs have historically increased at a rate of 4% per year. Assume that college costs continue to increase an average of 4% per year and that the interest earned on the savings account is 9%. How much money (in $) will the couple's first baby need to have available at age 18 to pay for all four years of her college (assuming that college costs for the year are incurred at the beginning of the year)? (Round your answer to the nearest dollar.)
$
Have her parents deposited enough money?
Yes or No
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You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 18 years. You expect that the drug's profits will be $2 million in its first year and that this amount will grow at a rate of 5% per year for the next 18 years. Once the patent expires, other pharmaceutical companies will be able to produce the same drug and competition will likely drive profits to zero. What is the present value (in millions of dollars) of the profits from the new drug if the interest rate is 10% per year? (Round your answer to two decimal places.)
$ million
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