Question

he wants to have a secure university education for his lovely daughter Daisy. His daughter is...

he wants to have a secure university education for his lovely daughter Daisy. His daughter is now 13 years old. She plans to enroll at the University of Professional Studies, Accra in 5 years, and it should take her 4 years to complete her education. Currently, the cost per year (for everything – her food, clothing, tuition, books, transportation, and so forth) is GH¢ 12,000 per year. This cost is expected to remain constant throughout the four-year university education. The daughter recently received GH¢ 7,500 from her grandfather’s (King David’s) estate; this money will be invested at a rate of 8% to help meet the costs of Daisy’s education. The rest of the costs will be met by money King Solomon will deposit in a savings account which also earns 8 percent compound interest per year. He will make 5 equal deposits into the account, one deposit per annum starting one year from now until his daughter starts university. These deposits will begin one year from now. (Assume that school fees are paid at the beginning of the year).

a. King Solomon is planning to make the first of 5 deposits one year from now, how large must each deposit be for him to able to put his daughter through college?

Homework Answers

Answer #1

Information given:

  • Amount required = GH¢ 12,000 per year = GH¢ 48,000 for 4 years
  • Current Savings = GH¢ 7,500
  • Return on Investment = 8%

To find

  • Rest amount saved for 5 years in equal installments = ?

The question can be solved using the PMT function in excel:

Hence, the amount to be saved for 5 years in equal installments at the end of each year = GH¢ 6303.49

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