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You are saving for your child's college education. You plan on making a total of six...

You are saving for your child's college education. You plan on making a total of six tuition payments each one-year apart (college plus a masters program). The annual estimated tuition payment will be made 14-years from today (at t=14), and you estimate that payment will be $50,000. The remaining five-payments will be made from t=15 to t=19. You decide to make 15 yearly contributions into an investment account. The first contribution is made today (t=0) and your last contribution will be at t=14 (the same time you make your first tuition payment), you expect your investment account will earn 8% per year. Under this plan how much will you contribute annually?

a. Find the discounted cash flow equation.
b. Solve the equation to find the annual contribution amount.

Solutions

Expert Solution

Amount required at year 14 = $ 249,635.50

Calculated as Present Value of Annuity Due comprising annual tuition payments as follows:

Annual contributions required= $8,512.93 calculated as follows:

jeff jeffy answered 2 years ago
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