Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are preparing yourself for the high costs of college tuition for your daughter. You expect him to start college in 18 years (t=18) and

You are preparing yourself for the high costs of college tuition for your daughter. You expect him to start college in 18 years (t=18) and expect her to be in college for 4 years. Todays tuition is $28,000 per year and tuition has increased historically at 6% per year and is expected to continue to grow at the same rate in the future. You want to make an initial deposit of $15,000 in a savings account, which is guaranteed to return 1.982% per year (APR) in interest, compounded monthly. Each year, until your daughter starts college you plan on depositing an equal amount that is precisely enough to make the tuition payments during the time your daughter attends college. Hence, your first deposit (not including the initial $15,000) takes place at t=1 and your final deposit takes place at t=17.

a. Calculate what annual deposit is required to achieve your goal.

b. Calculate how much money (at t=0) can be saved (or is lost?) when your son could skip a grade in high school and start college one year sooner?

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

Stock Market Investing For Beginners

Authors: Andrew P.C.

1st Edition

1549522132, 978-1549522130

More Books

Students also viewed these Finance questions

Question

Explain the effect of depreciation on cash flow.

Answered: 1 week ago