Question

Today is your child’s first birthday. You anticipate that when your child attends college, the

full cost of tuition for their freshman year will be $75,000 and that this cost will increase by

4% per year for each following year. You would like to begin saving money today, and each

birthday up to and including your child’s 18th birthday, to fund your child’s education. If the

account in which you will be saving earns interest at a rate of 8%, compounded annually, what

amount must be deposited each year (equal deposits), starting today, such that the balance on

the account is sufficient to cover four years of college tuition expenses. Tuition for your child’s

freshman year will be due on their 19th birthday.

Answer 1

Particulars	Year 0	Year 1	Year 2	Year 3	Total
Tuition fee	75,000.00	78,000.00	81,120.00	84,364.80
× PVF	1.00000	0.92593	0.85734	0.79383
Present value	75,000.00	72,222.22	69,547.33	66,971.50	283,741.05
× Sinking fund factor					0.024724
Payment each period					7,015.26

Answer is:

7,015.26