Question

1. Assume that your parents wanted to have $ 100,000 saved for college by your 18th birthday and they started saving on your first birthday. They saved the same amount each year on your birthday and earned 7.5 % per year on their investments.

a. How much would they have to save each year to reach their goal? (Round to the nearest cent.)

b. If they think you will take five years instead of four to graduate and decide to have $ 140,000 saved just in case, how much would they have to save each year to reach their new goal? (Round to the nearest cent.)

2. A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $ 1 comma 000. Each year after that, you will receive a payment on the anniversary of the last payment that is 7 % larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 15 % per year.

a. What is today's value of the bequest? (Round to the nearest​ dollar.)

b. What is the value of the bequest immediately after the first payment is made? (Round to the nearest​ dollar.)

Answer 1