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In: Finance

Your younger sister, Linda, will start college in five years. She has just informed your parents...

Your younger sister, Linda, will start college in five years. She has just informed your parents that she wants to go to Hampton University, which will cost $45,000 per year for four years (cost assumed to come at the end of each year). Anticipating Linda’s ambitions, your parents started investing $6,500 per year five years ago and will continue to do so for five more years. Use 11 percent as the appropriate interest rate throughout this problem (for discounting or compounding).

How much will your parents have to save each year for the next five years in addition to the $6,500 they are currently saving to have the necessary funds for Linda's education? . (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Solutions

Expert Solution

Annual Collage expense = $45,000

Tenure = 4 year

Interest rate = 11%

Total amount required at begining of collage to meet all collage expense is calculated in excel and screen shot provided below:

Total amount required at begining of collage to meet all collage expense is $139,610.06.

You Parents started saving five year ago, $6,500 per year. Current value of saving is calculated in excel and screen shot provided below:

Current Value of saving is $40,480.71.

Total annual saving required for next five year is calculated in excel and screen shot provided below:

Annual Saving required for next 5 year is $11,464.35.

Additional saving required = $11,464.35 - $6,500

= $4,964.35.

Additional saving required for next 5 year is $4,964.35.

jeff jeffy answered 2 years ago
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