Question

Your parents have accumulated a $140,000 nest egg. They have been planning to use this money to pay college costs to be incurred by you and your sister, Courtney. However, Courtney has decided to forgo college and start a nail salon. Your parents are giving Courtney $17,000 to help her get started, and they have decided to take year-end vacations costing $7,000 per year for the next four years. Use 7 percent as the appropriate interest rate throughout this problem. Use Appendix A and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. a. How much money will your parents have at the end of four years to help you with graduate school, which. You plan to work on a master’s and perhaps a PhD. If graduate school costs $21,980 per year, approximately how long will you be able to stay in school based on these funds? you will start then?

Answer 1

a) how much money the parents willl have at the end of four years:

Total nest egg = $140000

money given to Courtney = $17000

Remainig money with parents = $123000

Now to calculate how much money incured after the net cash inflows and outflows with the parents we must calculate the balance each year with the 7% interest rate all accounting all other expenses they are going to incure

Year 1:

Balance at the end of yerr = Amount(1+r)ⁿ - cash out flow

Year 1 = $123000(1+0.7) -7000 = $124610

Year 2= $124610(1+.07) -7000 = $126332.7

Year 3 = $124610(1+0.7)-7000 = $128176

Year 4 = $126332.7 (1+0.07) -7000 = $130148

particular/year	1	2	3	4
Balance at the begening	$123000	$124610	$126332.7	$128176
Add:7% interest	$8610	$8722.7	$8843.3	$8972
	$131610	$133332.7	$135176	$137148
less: expenses on vacation	7000	$7000	$7000	$7000
Balance at the end of year	$124610	$126332.7	$128176	$130148

Hence, the money remaing at the end of four years will be $130148

2) If the school fees is $21980 per year then one can studdy $130148/$21980 years i.e 5.92 year in that school.