Question

Your client has a 10-year old son who will be entering college in 8 years. Your...

Your client has a 10-year old son who will be entering college in 8 years. Your client estimates college costs to be $16,000, $17,000, $18,000 and $19,000 payable at the beginning of each of the son’s four years in college. Your client expects to have $4,000 available when he turns 15 to help defray his college expenses. How much must your client save at the end of each year for the next 8 years to have enough savings to pay for his son's education? Assume a 8% return on all invested funds.

answer choices

$5,379

$5,669

$5,099

$4,632

$4,860

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Homework Answers

Answer #1

1. Calculation of Present value of Fee required at Time 8.

PV =

= 16000 + 15740.7407 + 15432.0988 + 15082.8126

PV = 62255.6521

2. Calculate the Fv of $4000 from time 5 to time 8.

= 4000(1.08)3 = 5038.8480

3. Net Amount required = 62255.6521 - 5038.8480 = 57216.8081

4. Annual contribution required

FV =Annuity + Annuity x cumulative annuity factor @ 8% for 7 years

57216.8081 = Annuity x ( 1+ 9.636627)

Annuity = 57216.8081 / 10.636627

Annuity = 5379.22

Option a is correct  

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