Question

You are planning to save for you child’s college education which will start in 18 years. You expect the tuition to be $43,449, each year, in years 18 to 21. If your college savings account pays 5.69% APR compounded annually, how much do you have to deposit in years 1 to 10 to exactly fund the tuition?

You are planning to save for your child’s college education which will start in 18 years. You expect tuition to be $57,554 each year in years 18 to 21. If your college savings account pays 3.3% compounded annually, how much do you have to deposit today to fund your child’s college education?

Answer 1

PVAnnuity Due = c*((1-(1+ i/100)^(-n))/i)*(1 + i/100 )

C = Cash flow per period

i = interest rate

n = number of years

PV= 43449*((1-(1+ 5.69/100)^-4)/(5.69/100))*(1+5.69/100)

PV = 160258.05

Using Calculator : Press buttons : "2ND"+"PMT"+"2ND"+"ENTER"+"2ND"+"CPT" then assign

PMT =43449

I/Y =5.69

N =4

FV = 0

CPT PV

Using Excel

=PV(rate,nper,pmt,FV,type)

=PV(5.69/(100),4,,PV,1)

EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100

? = ((1+5.69/(12*100))^12-1)*100

Effective Annual Rate% = 5.84

Future value = present value*(1+ rate)^time

160258.05 = Present value*(1+0.0584)^8

Present value = 101770.34

Using Calculator: press buttons "2ND"+"FV" then assign

FV =-160258.05

I/Y =5.84

N =8

PMT = 0

CPT PV

Using Excel

=PV(rate,nper,pmt,FV,type)

=PV(0.0584,8,,160258.05,)

FVOrdinary Annuity = C*(((1 + i/100)^n -1)/(i/100))

C = Cash flow per period

i = interest rate

n = number of years

101770.34= Cash Flow*(((1+ 5.84/100)^10-1)/(5.84/100))

Cash Flow = 7779.31

Using Calculator: press buttons "2ND"+"FV" then assign

FV =101770.34

I/Y =5.84

N =10

PV = 0

CPT PMT

Using Excel

=PMT(rate,nper,pv,fv,type)

=PMT(5.84/(100),10,,101770.34,)