Question
You are a financial adviser at a major bank. A young couple approaches you for financial advice. They have just had their first baby and
You are a financial adviser at a major bank. A young couple approaches you for financial advice. They have just had their first baby and they wish to ensure that enough money will be available to pay for their new-born babygirl's university education. Currently, tuition, books, fees, and other costs average $12,500 per year and are expected to grow at a rate of 4% per year for the foreseeable future. The annual interest rate is 7%. What is the amount of money the child will need to have at age 18 to pay for all four years of her undergraduate education? Assume that she will enter the first year of university at age 18 and that during the four years she will deposit the yearly cost in an account paying 7% annual interest. (Note that the costs keep increasing at 4% during the four years) (Hint: start by calculating the cost of the first year of education when the baby turns 18.) Draw the time-lines.
Select one:
a. $ 94,349
b. $ 75, 637
c. $ 89, 569
d. $ 97,110
e. $ 91,778
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