A father, concerned about the rapidly rising cost of a college education, is planning a savings program to put his daughter through college. She is now 13 years old, plans to enroll in the university in 5-years time, and it should take her 4-years to complete her education. Currently, the cost per year (for everything ?food, clothing, tuition, books etc.) is $10,500, but a 5.5% annual inflation rate in these costs is forecasted. The daughter recently received $8,000 from her grandfather?s estate; this money is invested in a bank account that pays 9% interest compounded annually and will be used to help meet the costs of the daughter?s education. The rest of the costs will be met by money the father will deposit in a savings account. He will make equal deposits to the account in each year from now until, and including, the year his daughter starts college. These deposits will also earn 9% interest. If the first deposit is made today, how large must each deposit be in order to put his daughter through college?
college fee at the end of year 5
for second year
for third year
for fourth year
Total amount needed at the end of year 5
less value of grandfather money
Additional money needed at the end of year...
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Oct 14, 2020EXPERT
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