Question

2. You are 20 years old and anitcipate you will have your first child when you are 25 years old. At 25 years old, you want to save at the end of each month for the next 18 years. You anticipate that when your child goes to college, tuition room and board to be paid at the beginning of each year will cost $20,000. Education inflation is expected to be at 4% each year. If you can earn 8.5% on investments from when you are 25 years until your child completes college and you put $2,000 down at 25 years old as you start investing, how much money in real dollars do you have to save to achieve this goal accounting for education inflation?

PLEASE ANSWER IN EXCEL FORM

Answer 1

Nominal Interest rate :	8.50%		Assuming education years	4
Inflation rate:	4		Assumed cost	$20000
Downpayment	$2000
Investment period	18
		Covering all the aspects : Inflation , Investments ,etc., We may say that :
			ROI = Investment return- investment cost and inflation
Investment return = (Downpayment+ Total investment)*(1+ Nominal Interest rate/100)^years1
Investment cost / Inflation = Assumed cost(1+Inflation rate/100)^years 2
As we need to calculate , Investment cost/ Inflation =	47398.38
	Further , Investment	8916.167
		The above investment is lumpsum , therefore to calculate monthly divide it by 18 years and 12 Months i.e, $41.27 Thus , he needs to pay $41.27 per month