Bob has 3 children, ages 2, 6 and 8. He would like to pay for their...

Bob has 3 children, ages 2, 6 and 8. He would like to pay for their education at a public college, four years for each child beginning at age 18. The annual cost of education is currently $18,000 and has been increasing at 5% and is expected to continue. If his savings for their education expenses will earn 8.5%,

a) What is the NPV of their college educations?

b)Bob plans to save for their education expenses over the next 10 years. If he has $30,000 saved as of today for these expenses, how much must he save at the end of each year?

Solutions

Expert Solution

(a ): NPV of college education of all the three children= $136,283.22

Calculation as below:

(b ):

NPV of college education (as above)= $136,283.22

Amount saved till today= $30,000

Net amount of PV of education expenses= 136283.22-30,000 = $106,283.22

Amount to be saved every year in the next 10 years= $16,198.38

Calculation as below:

jeff jeffy answered 1 year ago

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