Question

In: Finance

Your son Tommy was just born today (Year 0), and you are plannjng for his college...

Your son Tommy was just born today (Year 0), and you are plannjng for his college education. You would like to make equal depostis every 26 weeks into a college savings account starting in Year 1 and ending in Year 21 (41 deposits), so that Tommy can make annual withdrawala in Year 18, 19, 20, and 21 for tuition. Tuition is currently (Year 0) $2500/year, and it is expected to grow at 4%/year for each of the next 10 years, and then at 5%/year for all years after. You can earn a nominal annual rate or 8.45% with interest compounded weekly in a college savings account. How much must eaxh lf the 41 depostions be to exactly fund the expexted tuition expense?

Solutions

Expert Solution

Assume a year has 52 weeks, so the weekly interest rate can be found rom the nominal annual rate of 8.45% as

Follow the excel sheet instructions for the solution

The depositions should be $ 218.739 respectively to exactly fund the tuition expense

jeff jeffy answered 1 year ago
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