Question

You would like to set aside money for your child’s education at a 4-year college. Tuition payments will begin in exactly 18 years and will be paid for 4 consecutive years at the child’s 18th, 19th, 20th, and 21st birthdays. It is estimated that the full cost of the child’s education will be $60,000 per year. Assume interest rate to be 5%.

- What is the amount needed to meet this cost exactly at 18 years?

- What is the dollar amount that needs to be set aside today to cover all 4 years of tuition?

- Suppose you plan on saving an equal amount at the end of each year to meet this cost for the first 17 year of your child’s life. What amount do you need to save per year?

Answer 1

Amount of Corpus required at the end of 18 years	$223,394.88
Dollar amount that needs to be set aside today to cover all 4 years of tuition	$92,825.19
Amount needed to save per year by saving an equal amount at the end of each year to meet this cost for the first 17 year of your child’s life.	$8,645.19

Below are the excel snips and formulae for your reference. Feel free to reach out in case of any clarifications/doubts.

=PV(5%,4,-60000,0,1) - this is using beginning of the period payments

=PV(5%,18,,-B2)

=PMT(5%,17,,-B2)