Question

A father is saving to put his daughter through college. She is 5 years old, will enroll in 13 years, and should graduate 4 years after that. Assume all college costs are paid upfront at the beginning of the year annually. Currently, college costs $18,000 per year, but is expected to increase 3% per year. He currently has $10,000 saved and his account earns 8% annually. He plans on making 13 equal deposits starting one year from today. How large must each payment be? Answer with 2 decimals (ex. $1,000.00).

Answer 1

Given one year fee at current rate (P) =$18,000

Growth rate in fee (g)= 3%

First year fees= 18,000*(1+3%)^13 = $26,433.61

Amount required at the commencement of education (13 years from now)= $98,615.76 as follows:

Yearly deposits required at the end of 13 years= $3,322.57 as follows: