Question

Problem 5-40 Required annuity payments A father is now planning a savings program to put his...

Problem 5-40
Required annuity payments

A father is now planning a savings program to put his daughter through college. She is 13, she plans to enroll at the university in 5 years, and she should graduate in 4 years. Currently, the annual cost (for everything - food, clothing, tuition, books, transportation, and so forth) is $13,000, but these costs are expected to increase by 5% annually. The college requires that this amount be paid at the start of the year. She now has $9,000 in a college savings account that pays 6% annually. Her father will make six equal annual deposits into her account; the first deposit today and sixth on the day she starts college. How large must each of the six payments be? Round your answer to the nearest dollar. [Hint: Calculate the cost (inflated at 5%) for each year of college and find the total present value of those costs, discounted at 6%, as of the day she enters college. Then find the compounded value of her initial $9,000 on that same day. The difference between the PV of costs and the amount that would be in the savings account must be made up by the father's deposits, so find the six equal payments (starting immediately) that will compound to the required amount.]

Homework Answers

Answer #1

Cost of college after 5 years= 13000*(1+5%)^5= 16591.66

Amount for 4 years of college paid in

E/o Year 5 = 16591.66

E/O Year 6 = 16591.66*(1+5%)^1 = 17421.24

E/O Year 7= 16591.66*(1+5%)^2= 18292.31

E/O year 8 = 16591.66*(1+5%)^3 = 20167.27

PV of the amounts paid at year 5

Year 5= 16591.66

Year 6 = 17421.24/1.06^1 = 16435.13

Year 7 = 18292.31/1.06^2 = 16280.09

Year 8 = 20167.27/1.06^3= 16932.83

Total = 66239.71

PV of savings = =9000*(1+6%)^5 = 12044.03

Net PV difference= 66239.71-12044.03 = 54195.68

Using excel PMT function as =PMT(6%,6,,B11,1)

Annuity required= $7,329.85

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Problem 5-40 Required annuity payments A father is now planning a savings program to put his...
Problem 5-40 Required annuity payments A father is now planning a savings program to put his daughter through college. She is 13, she plans to enroll at the university in 5 years, and she should graduate in 4 years. Currently, the annual cost (for everything - food, clothing, tuition, books, transportation, and so forth) is $13,000, but these costs are expected to increase by 5% annually. The college requires that this amount be paid at the start of the year....
Problem 5-40 Required annuity payments A father is now planning a savings program to put his...
Problem 5-40 Required annuity payments A father is now planning a savings program to put his daughter through college. She is 13, she plans to enroll at the university in 5 years, and she should graduate in 4 years. Currently, the annual cost (for everything - food, clothing, tuition, books, transportation, and so forth) is $13,000, but these costs are expected to increase by 5% annually. The college requires that this amount be paid at the start of the year....
A father is now planning a savings program to put his daughter through college. She is...
A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years, and she should graduate 4 years later. Currently, the annual cost (for everything - food, clothing, tuition, books, transportation, and so forth) is $16,000, but these costs are expected to increase by 5% annually. The college requires total payment at the start of the year. She now has $9,000 in a college savings account...
Required Annuity Payments. A father is now planning a savings program to put his daughter through...
Required Annuity Payments. A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years, and should graduate 4 years later. Currently, the annual cost (for everything—food, clothing, tuition, books, transportation, and so forth) is $12,000, but these costs are expected to increase by 6% annually. The college requires total payment at the start of the year. She now has $10,000 in a college savings account...
A father is now planning a savings program to put his daughter through college. She is...
A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years, and she should graduate 4 years later. Currently, the annual cost (for everything - food, clothing, tuition, books, transportation, and so forth) is $13,000, but these costs are expected to increase by 6% annually. The college requires total payment at the start of the year. She now has $10,000 in a college savings account...
A father is now planning a savings program to put his daughter through college. She is...
A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years, and she should graduate 4 years later. Currently, the annual cost (for everything - food, clothing, tuition, books, transportation, and so forth) is $13,000, but these costs are expected to increase by 5% annually. The college requires total payment at the start of the year. She now has $10,000 in a college savings account...
A father is now planning a savings program to put his daughter through college. She is...
A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years, and she should graduate 4 years later. Currently, the annual cost (for everything - food, clothing, tuition, books, transportation, and so forth) is $12,000, but these costs are expected to increase by 7% annually. The college requires total payment at the start of the year. She now has $9,500 in a college savings account...
A father is now planning a savings program to put his daughter through college. She is...
A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years, and she should graduate 4 years later. Currently, the annual cost (for everything - food, clothing, tuition, books, transportation, and so forth) is $16,000, but these costs are expected to increase by 7% annually. The college requires total payment at the start of the year. She now has $8,000 in a college savings account...
eBook A father is now planning a savings program to put his daughter through college. She...
eBook A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years, and she should graduate 4 years later. Currently, the annual cost (for everything - food, clothing, tuition, books, transportation, and so forth) is $19,000, but these costs are expected to increase by 6% annually. The college requires total payment at the start of the year. She now has $7,000 in a college savings...
33. A father is now planning a savings program to put his daughter through college. She...
33. A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years, and she should graduate 4 years later. Currently, the annual cost (for everything - food, clothing, tuition, books, transportation, and so forth) is $13,000, but these costs are expected to increase by 6% annually. The college requires total payment at the start of the year. She now has $10,000 in a college savings...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT
Active Questions
  • can you answer this essay questions 1. Describe three of the key knowledge areas that define...
    asked 2 minutes ago
  • Compare the American Counselors Association (ACA) code of ethics regarding continuing education to the National Association...
    asked 8 minutes ago
  • Python Jupyter Notebook An acronym is a word formed by taking the first letters of the...
    asked 40 minutes ago
  • Question posed after chapter 4.5 of differential equations class, book by p. blanchard, 4th edition :...
    asked 43 minutes ago
  • Below are some crude cause-specific mortality rates from the two studies. Crude mortality rate per 100,000...
    asked 1 hour ago
  • A computer chess game and a human chess champion are evenly matched. They play twelve games....
    asked 1 hour ago
  • Identify and describe instances of the following: Cognitive Dissonance Denial Overgeneralization Conformity Also, how about the...
    asked 1 hour ago
  • Your task is to identify 2 advertisements. One advertisement encourages a consumer to use a non-compensatory...
    asked 1 hour ago
  • For the following exercises, consider this scenario: For each year t, the population of a forest...
    asked 1 hour ago
  • Question 5 A 15-minute-rainfall of 20-year Average Recurrence Interval (ARI) was fallen over a 5ha catchment...
    asked 1 hour ago
  • Explain what is Band structure and and why energy bands are formed in a solid state?...
    asked 1 hour ago
  • Test the hypothesis using the p-value approach Upper H 0H0​: pequals=0.3 versus Upper H 1H1​: pgreater...
    asked 2 hours ago