Question

Ten years ago, when Jen was born, her parents opened up a savings account and deposited $10,000 immediately. They planned for her to use all the money deposited in that account over the years towards her college education when she turns 18. Afterwards, they made additional deposits of $5,000 per year. However, due to some unforeseen circumstances, they will withdraw $8,000 from the account this year and will not contribute anything next year. However, they plan to deposit $7,000 per year for the remaining years until their daughter turns 18. How much will Jen have in that account to contribute towards her college education when she is 18?

Answer 1

Deposited $ 10,000 (at T = 0)

Withdrew $ 8,000 (at T =.10)

Deposit $ 0 (at T = 11)

Deposit from 1 to 9 years = $ 5,000 each year

Deposit from 12 to 18 years = $ 7,000 each year.

Here the interest rate is missing.

Assume interest rate = 10%

We can solve this problem by converting the cash flow into present value then converting it into future value.

Now convert it to future value

Therefore at the 18th. Birthday the Mount is $ 264959.14.

Note you can consider any rate instead of 10% whatsoever rate provided.

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