Question

A professor has two daughters that he hopes will one day go to college. Currently, in-state students at the local University pay about $21,576.00 per year (all expenses included). Tuition will increase by 3.00% per year going forward. The professor's oldest daughter, Sam, will start college in 16 years, while his youngest daughter, Ellie, will begin in 18 years. The professor is saving for their college by putting money in a mutual fund that pays about 8.00% per year. Tuition payments are at the beginning of the year and college will take 4 years for each girl. (Sam's first tuition payment will be in exactly 16 years) The professor has no illusion that the state lottery funded scholarship will still be around for his girls, so how much does he need to deposit each year in this mutual fund to successfully put each daughter through college. (ASSUME that the money stays invested during college and the professor will make his last deposit in the account when Sam, the OLDEST daughter, starts college.)

Answer 1

University Fees in 16 years from now= 21576*(1+3%)^16=34623.15

Similarly, Tuition Fees calculation for the following years is given below:

years from now	Tuition Fees	Total Tuition Fees	Discounted Value at 16th year @8% (i.e. Fees/(1+8%)^(year-16)
16	$ 34,623.15	$          34,623.15	$                                                                                                34,623.15
17	$ 35,661.84	$          35,661.84	$                                                                                                33,020.22
18	$ 36,731.70	$          73,463.39	$                                                                                                62,983.02
19	$ 37,833.65	$          75,667.29	$                                                                                                60,067.14
20	$ 38,968.66	$          38,968.66	$                                                                                                28,643.13
21	$ 40,137.72	$          40,137.72	$                                                                                                27,317.05
		Total	$                                                                                              246,653.70

Please noet that, on 18th and 19th year tuition fees are double as both of his daughter is studying together.

Now, professor's money should grow to the value of $246653.70 on 16th year. Therefore, FV=246653.70, nper=16,rate=8%

So, every year professor has to deposit $7531.36 to get the required tuition fees for their daughters.