Question

15 years from now, your 2-year old son will be attending Harvard. You have determined he will need $85,000 per year for tuition and living expenses. In 15 years, you will give him a lump sum payment for the entire amount he will need, assuming that he will be able to invest the money not yet needed at 4.5% interest. You have found an investment opportunity that will yield an annual return of 6.5% on your monthly payments. How much will you have to invest each month to give your son the money he needs for his education (assume his first year at Harvard is Year 0, and his final year is Year 3)?

please use excel

Answer #1

This question needs to be solved in 2 parts.

in first part, we need to calculate present value at the start of year 0 of $85,000*4 = $340,000 for 4 years of tuition and living expenses.

in second part using this present value, we need to calculate monthly investments for 15 years to get that present value.

Part 1 | |

Future value | $340,000 |

Interest rate | 4.50% |

No. of years | 4 |

payments | $0 |

Present value | $285,110.86 |

Part 2 | |

Future value | $285,110.86 |

monthly Interest rate | 0.54% |

No. of months for investments | 180 |

Present value | $0 |

Monthly investments | $939.27 |

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