Question

CSU's yearly tuition cost, due on September 1 each year, is $5000 on September 1, 2007, and will increase by 3% per year. Sal wishes to provide for his son Tim’s four-year tuition payments at CSU, which his son will enter in 2022.

To do this, Sal will, beginning on September 1, 2007, deposit a level amount $X on the first day of each month for 15 years into a fund bearing a nominal annual rate of 7% compounded monthly.

Calculate the minimum value of X so that the fund has sufficient money to cover Tim’s four-year tuition payments.

Please show all work and do not use excel, thanks!

Answer 1

FV = P{(1+R)^N-1/R}

FV = 5000(1+0.03)^15 -1/0.03}

FV= 5000(1.03)^15-1/0.03

FV = 5000(1.5579674-1)/0.03

FV = 5000(0.5579674)/0.03

FV = 5000*18.598913

FV = 92995

TOTAL FEES TO BE PAID IN 15 YEARS IS RS 92995

2. HOW MUCH TO INVEST EVERY MONTH

R= 7%/12 = 0.5833%

FV = P{(1+R)^N-1/R}

92995 = P{1+0.005833)^180 -1/0.005833}

92995 = P(1.005833)^6*6*5 -1/0.005833}

92995 = P(2.848946-1)/0.005833

92995 = P(1.848946)/0.005833

92995= P(316.980406)

P = 92995/316.980406

P = 293.38

SO HE HAS TO INVEST 294 RS EVERY MONTH