Question

Good afternoon interns,

As you all know, you are all vying for the 15 openings to be offered at the end of the internship. Another chance has come up for you to show us that you deserve one of those positions here at Firmament Financials Inc. New clients, Mr. and Mrs. Perez are planning on starting a family and would like to start saving for their child’s college education. The want to know what they can afford when their child is ready for college. They would like to utilize our Yearly College Savings Plan which grows a yearly deposit at an APR of 15% with continuous compounding. Your job is to analyze their information and come up with feasible recommendations. Their information can be found in the email they sent. Of course, you will be graded on your analysis. A grading rubric has been provided.

Good luck interns!

Theresa Robles

Financial Planner Senior

Dear Ms. Robles,

As satisfied customers of Firmament Financial, we, of course, look to you to help us save for our upcoming child’s college education. We feel that we can afford $100 per month for the 18 years until college in your College Savings Plan. We have a list of universities that we have researched with the approximate cost per year for each. Which if any of the university options will we be able to afford for our child? We would prefer to send them to an elite private university if we can afford it.

Thank you very much,

Anthony & Veronica Perez

University/College Type	Cost per year
Elite Private	$100,000
Elite Public	$80,000
State Private	$60,000
State Public	$40,000
Out of State Community College	$6,000
In-State Community College	$2,500

Answer 1

solution:

We have to find the FV of the annuity here.
Interest rate is 15% compounded continuously
EAR =e^(0.15)-1
EAR =16.183% pa=1.3486% per month
Annuity Future Value formula
FV= A [ {(1+k)n-1}/k]
FV = Future annuity value=??
A = periodical investment=100 per month
K=interest rate=1.3486% per month
N=periods=18 Yrs=216 months
FV =100*(1.0134860^216-1)/1.3486%
FV=$126,476
So the Future value of the annuity would be $126,476
and Mr & Mrs Perez will be able to send their child to elite
private university