Question

Suppose that a young couple has just had their first baby and they wish to ensure that enough money will be available to pay for their child's college education. They decide to make deposits into an educational savings account on each of their daughter's birthdays, starting with her first birthday. Assume that the educational savings account will return a constant 7%. The parents deposit $2000 on their daughter's first birthday and plan to increase the size of their deposits by 5% each year. Assuming that the parents have already made the deposit for their daughter's 18th birthday, then the amount available for the daughter's college expenses on her 18th birthday is closest to:

Answer 1

AMOUNT AT 18TH BIRTHDAY = $91,747.27

I AM ASSUMING INSTALLMENTS ARE MADE AT THE BIRTHDAY

INTEREST ARE CREDITED AT THE END OF PERIOD

LAST INSTALLMENT IS MADE ON 17TH BIRTHDAY TO CALCULATE AMOUNT FINAL AMOUNT AT 18TH BIRTHDAY

FORMULAS-

INSTALLMENT = PREVIOUS VALUE + (PREVIOUS VALUE*5%)

INTERST = (OPENING BALANCE + INSTALLMENT ) x 7%

CLOSING BALANCE = OPENING BALANCE + INSTALLMENT + INTEREST

OPENING BALANCE = CLOSING BALANCE OF PREVIOUS YEAR

AGE	OPENING BALANCE	INSTALLMENT	INTEREST	CLOSING BALANCE
1.00		2000	140	2140
2.00	2140	2100	296.8	4536.8
3.00	4,536.80	2,205.00	471.93	7,213.73
4.00	7,213.73	2,315.25	667.03	10,196.00
5.00	10,196.00	2,431.01	883.89	13,510.91
6.00	13,510.91	2,552.56	1,124.44	17,187.91
7.00	17,187.91	2,680.19	1,390.77	21,258.87
8.00	21,258.87	2,814.20	1,685.12	25,758.19
9.00	25,758.19	2,954.91	2,009.92	30,723.02
10.00	30,723.02	3,102.66	2,367.80	36,193.47
11.00	36,193.47	3,257.79	2,761.59	42,212.85
12.00	42,212.85	3,420.68	3,194.35	48,827.87
13.00	48,827.87	3,591.71	3,669.37	56,088.96
14.00	56,088.96	3,771.30	4,190.22	64,050.47
15.00	64,050.47	3,959.86	4,760.72	72,771.06
16.00	72,771.06	4,157.86	5,385.02	82,313.94
17.00	82,313.94	4,365.75	6,067.58	92,747.27
18.00	92,747.27

PLEASE ASK FOR MODIFICATION IN COMMENTS