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 18^th 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 18^th 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 18^th birthday?

Expert Solution

Solution :-

The Money in son’s 529 Plan on his 18^th 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

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jeff jeffy answered 2 years ago

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