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. Currently, college tuition, books, fees, and others cost $20,000 per year. On average, tuition and other costs have historically increased at a rate of 6% per year. Assume the first college payment is made at the beginning of year 19 (i.e. immediately after the child’s 18th birthday). a) Assuming that college costs continue to increase an average of 6% per year, how much will the first college payment be? b) Assuming all college savings are invested in an account paying 8% interest, then what is the amount of money they will need to have available at age 18 to pay for all four years of the child's undergraduate education? c) How much does the couple need to save every year until their child’s 18th birthday to achieve their goal, assuming they make their first savings payment on their child’s first birthday, the last one on her 18th birthday? Assume they save the same amount every year.

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. Currently, college tuition, books, fees, and others cost $20,000 per year. On average, tuition and other costs have historically increased at a rate of 6% per year. Assume the first college payment is made at the beginning of year 19 (i.e. immediately after the child’s 18th birthday). a) Assuming that college costs continue to increase an average of 6% per year, how much will the first college payment be? b) Assuming all college savings are invested in an account paying 8% interest, then what is the amount of money they will need to have available at age 18 to pay for all four years of the child's undergraduate education? c) How much does the couple need to save every year until their child’s 18th birthday to achieve their goal, assuming they make their first savings payment on their child’s first birthday, the last one on her 18th birthday? Assume they save the same amount every year.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 33P

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