Question
In: Finance
Richard and Sue wants to provide full funding for their 3 year old daughter who is...
Richard and Sue wants to provide full funding for their 3 year old daughter who is expected to start college when she is 18. The current annual cost of a 4 year college is $38,000 which is expected to increase by 3.5% per year. They expect to earn 5% on their investment. They have already saved $13,000 in a college fund for this purpose. Calculate the additional amount they should save by the end of every year in order to accumulate funding for 4 years of college when their daughter turns 18.
answer: 10, 298 show how?
Solutions
Expert Solution
| Year | Cost of college |
| 1 | 63663.2556 |
| 2 | 65891.4695 |
| 3 | 68197.6709 |
| 4 | 70584.5894 |
| Present value | $249,247.96 |
| This is the FV at year 18 | |
| FV of initial savings | $27,026.07 |
| Balance | $222,221.89 |
| Annual savings | $10,298.27 |
WORKINGS
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