Question

You are saving for the college education of your two children. They are two years apart...

You are saving for the college education of your two children. They are two years apart in age; one will begin college 15 years from today and the other will begin 17 years from today. You estimate your children’s college expenses to be $55,000 per year per child, payable at the beginning of each school year. The annual interest rate is 9.2 percent. How much money must you deposit in an account each year to fund your children’s education? Your deposits begin one year from today. You will make your last deposit when your oldest child enters college. Assume your children will be on the four-year plan.

please show financial calculator way and formula way

Homework Answers

Answer #1

Since you want to deposit the money till your second child begin in year 17, the value of your expenses at the beginning of year 17 is calculated as follows

Total expenses required for first child = 55,000*1.092^2 + 55,000*1.092 + 55000 + 55000/1.092 = 231,011.82

Total expenses for second child = 55000 +55000/1.092 + 55000/1.092^2 + 55000/1.092^3 = 193,726.45

Total expenses equired at the beginning of year 17 = 424,738.27

Now, you have 16 years (16 deopsits) to save this amount required at beginning year 17.

This amount will be equal to FV of an annuity given by:

FV A = P*((1+r)^n-1)/r

424,738.27 = P*(1.092^16-1)/0.092

P = 12,652.14

Amount you will need to deposit each year = $12,652.14

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
You are saving for the college education of your two children. They are two years apart...
You are saving for the college education of your two children. They are two years apart in age; one will begin college 13 years from today and the other will begin 15 years from today. You estimate your children’s college expenses to be $39,000 per year per child, payable at the beginning of each school year. The annual interest rate is 7.3 percent. Your deposits begin one year from today. You will make your last deposit when your oldest child...
You are saving for the college education of your two children. They are two years apart...
You are saving for the college education of your two children. They are two years apart in age; one will begin college 15 years from today and the other will begin 17 years from today. You estimate your children’s college expenses to be $43,000 per year per child, payable at the beginning of each school year. The appropriate interest rate is 7.3 percent. Your deposits begin one year from today. You will make your last deposit when your oldest child...
You are saving for the college education of your two children. They are two years apart...
You are saving for the college education of your two children. They are two years apart in age; one will begin college 13 years from today and the other will begin 15 years from today. You estimate your children’s college expenses to be $39,000 per year per child, payable at the beginning of each school year. The annual interest rate is 7.3 percent. Your deposits begin one year from today. You will make your last deposit when your oldest child...
Bob and Brad are preparing for the collage education of their two children. The eldest child...
Bob and Brad are preparing for the collage education of their two children. The eldest child will start her University studies 6 years from today while the second will enter University 8 years from today. Bob and Brad estimate collage expenses to be $65,000 per year per child, payable at the beginning of each school year with each child spending 4 years in University. Draw the timeline for this problem. How much must they deposit each year if they begin...
Joseph and Raine Jones want to begin saving yearly for the college education of their children....
Joseph and Raine Jones want to begin saving yearly for the college education of their children. They have two children, a 1-year-old and a 5-year-old. They would like to make the first contribution to the children's college fund a year from today. They assume the children will begin their college education when they reach the age of 18. They would like each child to attend an in-state public university and the current cost of college is $23,000 each year per...
You are currently saving for your child's college education. The current cost of college is $10,000...
You are currently saving for your child's college education. The current cost of college is $10,000 a year. You expect that college costs will continue to increase at a rate of 5 percent a year. Your child is scheduled to begin attending a four-year college 10 years from now (i.e., college payments will be made at t=10, t=11, t=12, and t=13). You currently have $25,000 in an account which earns 6 percent after taxes. You would like to have all...
You are currently saving for your child's college education. The current cost of college is $10,000...
You are currently saving for your child's college education. The current cost of college is $10,000 a year. You expect that college costs will continue to increase at a rate of 5 percent a year. Your child is scheduled to begin attending a four-year college 10 years from now (i.e., college payments will be made at t=10, t=11, t=12, and t=13). You currently have $25,000 in an account which earns 6 percent after taxes. You would like to have all...
You are saving for your child’s college education. Tuition will be $30,000 each year for four...
You are saving for your child’s college education. Tuition will be $30,000 each year for four years, with the first tuition payment due 18 years from today. • How much do you need to deposit today in a bank account that earns 6% annual interest from now through the end of your child’s college education so that you will have enough money to meet all the tuition payments?
You are saving for the college education of your child. You estimate your child's college expenses...
You are saving for the college education of your child. You estimate your child's college expenses to be $30,000 per year and payable at the beginning of each academic year. The annual interest rate is 5% and it is not expected to change. You will also have to pay $17,000 at the end of year 3 and $1,000 at the end of year 4. At the point your child is about to start college, what is the present value of...
Suppose that some parents begin saving for their child’s college education. They currently have 15 years...
Suppose that some parents begin saving for their child’s college education. They currently have 15 years until their child starts college. Current tuition, room, and board costs $10000 per year. Assume these costs will grow at 7% per year for the next 20 years. Also assume it will take four years to graduate. (a) Calculate the costs for tuition, room, and board for these parents’ child 16, 17, 18, and 19 years from now. (b) How much would these parents...