Question

Your parents have accumulated a $140,000 nest egg. They have been planning to use this money to pay college costs to be incurred by you and your sister, Courtney. However, Courtney has decided to forgo college and start a nail salon. Your parents are giving Courtney $23,000 to help her get started, and they have decided to take year-end vacations costing $9,000 per year for the next four years. Use 9 percent as the appropriate interest rate throughout this problem. Use Appendix A and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.

   
a. How much money will your parents have at the end of four years to help you with graduate school, which you will start then? (Round your final answer to 2 decimal places.)
  

b. You plan to work on a master’s and perhaps a PhD. If graduate school costs $25,100 per year, approximately how long will you be able to stay in school based on these funds? (Round your final answer to 2 decimal places.)
  

Answer 1

a: The parents will have $123996.89 to help with graduate school.

b: I will be able to stay for 6.82 years based on these funds.

		Financial calculator inputs
a	Amount available immediately	PV	-117,000.00
	Tenure	N	4
	Rate of interest	I/Y	9
	Annual withdrawals	PMT	9000
	Amount after 4 years	FV	123,996.89
b	Amount available at start of Master	PV	123,996.89
	Annual withdrawal	PMT	-25100
	Rate of interest	I/Y	9
	Period of school	N	6.824101488