Question

In: Finance

My first son was born on July 5, 2002. On the day he was born, I...

My first son was born on July 5, 2002. On the day he was born, I opened a 529 Plan for him and deposited $1,000. Every year on his birthday, I contributed $100 more than the previous year. I will make my last contribution this year on his 18th birthday. As a conservative investor, I invested the money in a money market that paid 4% annually.

(b) How much money is in my son’s 529 Plan on his 18th birthday (after I make my final contribution)?

(c) What single lump sum contribution could I have made on July 5, 2002, without any subsequent annual contributions, that would have resulted in the exact same account value on his 18th birthday?

Solutions

Expert Solution

Solution :-

The Money in son’s 529 Plan on his 18th birthday (after I make my final contribution) = $49,349.30

(C) Single lump sum contribution = $49,349.50 / ( 1 + 0.04 )18

= $49,349.50 * 0.4936

= $24,360.20

If there is any doubt please ask in comments

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