Step 7 only please. Thank you! Introduction You are a financial planner and a new client,...

Step 7 only please. Thank you!

Introduction

You are a financial planner and a new client, Kristina came to your office with the following question: How much should she save annually given her goals?

Kristina is saving for two goals: one is to fund her child Katryna’s college education and the other is to retire.
Katryna will begin college in exactly 18 years, and Kristina will retire on the same day.
College costs for state institutions are currently running at $6,000 per year, and have historically increased at a rate of 5% per year.
Kristina will pay for a 4-year undergraduate education.
Kristina estimates she will live 30-year past her retirement, during which time she would like to pay herself a $60,000 per year salary (first payment occurs at the end of year 18, or beginning of year 19).
On the day she retires, Kristina would like to pay cash for a BMW Z4 convertible or whatever similar model BMW produces at that time. A Z4 cost $55,000 and BMW has increased price at a rate of 7% per year.
Kristina will save annually beginning in exactly one year—18 equal payments spread over time.
The date of the last savings installment coincides with the first tuition payment (and the day of Kristina retirement).
Kristina estimates an 8% expected return on all investments over the period.
How much does she have to save each year to accomplish the above goals?

Step 1: What will be the value of the Z4 of equivalent at the time of purchase? 10 points

Step 2: What will be the value of the 4 annual tuition payments? 15 points

Step 3: What will be the present value of the 4 annual tuition payments? 10 points

Step 4: What will be the present value of the 30 years of salary payments? 10 points

Step 5: What will be the value of Kristina’s savings when she retires? 10 points

Step 6: How much does Kristina need to save every year? 10 points

Step 7: Create a table showing all the additions and subtraction to the savings accounts and the value at the end of each year. (Hint: the value should be close to zero at the end) 25 points

Solutions

Expert Solution

ekkarill92 answered 3 months ago

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