Question

Jill would like to plan for her son's college education. She would like for her son,...

Jill would like to plan for her son's college education. She would like for her son, who was born today, to attend college for 5 years, beginning at age 18. Tuition is currently $12,000 per year and tuition inflation is 6%. Jill can earn an after-tax rate of return of 9%. How much must Jill save at the end of each year, if she wants to make the last payment at the beginning of her son's first year of college?

$3,145.81

$3,924.55

$4,406.75

$4,854.07
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

First we need to calculate amount required at age 18

Age 18 = 12000 * (1+0.06)^18 = $34252.07

Age 19 = $34252.07 * 1.06 = $36307.19

Age 20 = $34252.07 * (1.06^2) = $38485.63

Age 21 = $34252.07 * (1.06^3) = $40794.76

Age 22 = $34252.07 * (1.06^4) = $43242.45

Calculation of PV required at age 18

Requirement Discounting factor PV
1 34252.07 1 34252.069835
2 36307.19 0.917431193 33309.352317
3 38485.63 0.841679993 32392.581152
4 40794.76 0.77218348 31501.042221
5 43242.45 0.708425211 30634.041059
Total 162089.086584

Calculation of FV of annuity

FV of annuity = P[(1+r)^n - 1] / r

162089.086584 = P[(1+0.09)^18 - 1]/0.09

162089.086584 = P(4.71712 - 1)/0.09

P = 162089.086584/41.30134

P = 3924.55

Therefore correct answer is $3924.55

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Holly would like to plan for her daughter's college education. She would like for her daughter,...
Holly would like to plan for her daughter's college education. She would like for her daughter, who was born today, to attend college for 4 years, beginning at age 18. Tuition is currently $10,000 per year and tuition inflation is 7%. Holly can earn an after-tax rate of return of 9.5%. How much must Holly save at the end of each year, if she wants to make the last payment at the beginning of her daughter's first year of college?
James and Staci would like to plan for their son’s college education. They would like their...
James and Staci would like to plan for their son’s college education. They would like their son, who was born today, to attend a private university for 6 years beginning at age 18. Tuition is currently $30,000 a year and has increased at an annual rate of 5%, while inflation has only increased at 2% per year. They can earn an after-tax rate of return of 7%. How much must they save at the end of each year if they...
Your client, Brooke, decides to start saving for her son's college tuition. Her son was born...
Your client, Brooke, decides to start saving for her son's college tuition. Her son was born today and will go to college at age 18 for four years. Brooke wants to save until her son's first year of college. Given the following information, what is the present value of the total amount that Brooke needs to have saved at the beginning of her son's first year of college? Current tuition: $16,000 Tuition inflation: 6.5% Brooke's investment return: 10% $29,202 $39,010...
Joann wants to save for her daughter's education. Tuition costs $9,000 per year in today's dollars....
Joann wants to save for her daughter's education. Tuition costs $9,000 per year in today's dollars. Her daughter was born today and will go to school starting at age 18. She will go to school for 4 years. She can earn 12% on her investments and tuition inflation is 6%. How much must she save at the end of each year if she wants to make her last savings payment at the beginning of her daughter's first year of college?...
Jane would like to start saving for the college education of newborn, Matthew, who is a...
Jane would like to start saving for the college education of newborn, Matthew, who is a month old. She decided to send Matthew to Harvard and estimate that the currently it cost $15,000 per year in today’s dollar for tuition. They assume that Matthew will have 4-year college education starting at age 18. The investment rate of return for the savings plan is 8%. Education inflation is expected to be 6% annually. Calculate how much they will need save annually...
You would like your child, who was born today, to attend a private university for 4...
You would like your child, who was born today, to attend a private university for 4 years beginning at age 18. Tuition is currently $20,000 per year and has increased 5% annually. Your after-tax rate of return is 8%. How much must you save at the end of each year if you would like to make your last payment at the beginning of your child's first year of college? (inflation rate is 2%) 4629.73 7459.63 4930.68 20000
Chip and Chip's Spouse would like to save money for their newborn child's education. They would...
Chip and Chip's Spouse would like to save money for their newborn child's education. They would like to plan on $25,000 in todays dollars. Their child was born now and will start College in 18 years. They are planning on their child attending for 4 years. Chip and Chip's Spouse believe they can earn 8.5% on their investments and that tuition inflation will average 4.25% going forward. How much must Chip and Chip's Spouse save per year if they want...
. Peter wants to save some money for his daughter Leah’s education. Tuition costs $16000 per...
. Peter wants to save some money for his daughter Leah’s education. Tuition costs $16000 per year in today’s dollars. His daughter was born today and will go to school starting at age 18. She will go to school for 4 years. Peter can earn 8% on his investments and tuition inflation is 5%. How much must Peter save at the end of each year, if he wants to make his last savings payment at the beginning of his daughter’s...
You are saving up for your newborn daughter's education. You'd like for her to be able...
You are saving up for your newborn daughter's education. You'd like for her to be able to attend University 18 years from today. Today's tuition, room and board at University is $23,000 per year but college costs are expected to increase 6% per year for the next 18 years. Assume, for simplicity, that the cost of attending will be constant her 4 years of college and that tuition payments are due at the beginning of each year. Your investment account...
Jack wants to figure out how much to save for his daughter’s 4-year college education. She...
Jack wants to figure out how much to save for his daughter’s 4-year college education. She will begin college in 10 years and Jack wants her to attend his alma mater, Auburn University. Currently, Auburn costs approximately $8,000 per year for a 15-hour course load. Given inflation and typical tuition increases, Jack expects these costs to rise at a rate of 2.5% per year. How much does Jack need to save at the end of each year into an account...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT