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Suppose you are planning tuition funds for two children. The first child will need to make their first tuition payment in 10 years from today,
Suppose you are planning tuition funds for two children. The first child will need to make their first tuition payment in 10 years from today, and the second child will need to make their first tuition payment in 14 years from today. Each child will need four annual tuition payments. Assume average tuition now is $22,000 per year and will increase at a rate of 3% each year. You will invest the fund in equities with a 10.5% expected annual return until one year before the first tuition payment for the child. One year before the first tuition payment, you will switch the fund into a money market account with an expected annual return of 2%. Average tuition today 22,000.00 Annual increase in tuition 3.00% Rate of Return before college starts 10.50% Rate of Return after college starts 2.00%
a) How much money will you need to have accumulated one year before each child's first tuition payment to be able to meet the total tuition requirements? (Use Excel's NPV function)
b) If you were to make a single lump sum investment today, how much would you need to invest today to meet each child's total tuition requirements?
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