Question

In: Finance

​James Street's son, Harold, is 10 years old today. James wants to begin saving money for...

​James Street's son, Harold, is 10 years old today. James wants to begin saving money for Harold's college education, which Harold will begin on his eighteenth birthday. James estimates that it will cost $20,000, $22,000, $24,000, and $25,000 for his son's freshmen, sophomore, junior, and senior year respectively. Mr. Street plans to make these amounts available to his son at the beginning of each of these years.
Street would like to make eight annual deposits, the first of which would be made on Harold's eleventh birthday (one year from today) and the last on his eighteenth birthday (the day he leaves for college). These deposits will be made into an account paying 10% interest and he wants the account to be worth enough just to pay for Harold's education.
How much will Mr Street have to deposit into this account each year to provide for Harold's education (show all work)

Solutions

Expert Solution

Solution.>

The correct answer is $6,874.64

I have solved this question in Excel. The formula used are written along with the values. If you still have any doubt, kindly ask in the comment section.

Firstly we have to find the amount James must have after 8 years ie. on his son's 18th birthday from now so that it could give $20,000, $22,000, $24,000, and $25,000 for his son's freshmen, sophomore, junior, and senior year respectively. Hence we calculate the PV at his 18th birthday as shown below.

Then we have to find the amount he must invest each year for 8 years so that it matures into the amount calculated above in 8 years. Hence the PV calculated above will now becomes the Future Value in this case.

The formula used in excel is = PMT(Rate,NPER,PV,-FV)

It has been shown in the excel below.

Note: Give it a thumbs up if it helps! Thanks in advance!


Related Solutions

​James Street's son, Harold, is 10 years old today. James wants to begin saving money for...
​James Street's son, Harold, is 10 years old today. James wants to begin saving money for Harold's college education, which Harold will begin on his eighteenth birthday. James estimates that it will cost $20,000, $22,000, $24,000, and $25,000 for his son's freshmen, sophomore, junior, and senior year respectively. Mr. Street plans to make these amounts available to his son at the beginning of each of these years. Street would like to make eight annual deposits, the first of which would...
Your client is 22 years old; and she wants to begin saving for retirement, with the...
Your client is 22 years old; and she wants to begin saving for retirement, with the first payment to come one year from now. She can save $4,000 per year; and you advise her to invest it in the stock market, which you expect to provide an average return of 6% in the future. a. If she follows your advice, how much money will she have at 65? Round your answer to the nearest cent. b. How much will she...
Your client is 38 years old; and she wants to begin saving for retirement, with the...
Your client is 38 years old; and she wants to begin saving for retirement, with the first payment to come one year from now. She can save $3,000 per year; and you advise her to invest it in the stock market, which you expect to provide an average return of 7% in the future. If she follows your advice, how much money will she have at 65? Round your answer to the nearest cent. $ How much will she have...
Your client is 36 years old. She wants to begin saving forretirement, with the first...
Your client is 36 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $12,000 per year, and you advise her to invest it in the stock market, which you expect to provide an average return of 8% in the future.If she follows your advice, how much money will she have at 65? Do not round intermediate calculations. Round your answer to the nearest cent. $How much will...
Your client is 24 years old. She wants to begin saving forretirement, with the first...
Your client is 24 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $7,000 per year, and you advise her to invest it in the stock market, which you expect to provide an average return of 8% in the future.a. If she follows your advice, how much money will she have at 65? Do not round intermediate calculations. Round your answer to the nearest cent.b. How much...
Your client is 26 years old. She wants to begin saving for retirement, with the first...
Your client is 26 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $8000 per year and you advise her to invest it in the stock market, which you expect to provide an expected return of 10% in the future. A) If she follows your advice, how much money she will have at 65? B) She expects to live for 20 years after she retires at 65....
Your client is 27 years old. She wants to begin saving for retirement, with the first...
Your client is 27 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $14,000 per year, and you advise her to invest it in the stock market, which you expect to provide an average return of 8% in the future. If she follows your advice, how much money will she have at 65? Do not round intermediate calculations. Round your answer to the nearest cent. $   How...
Your client is 33 years old. She wants to begin saving forretirement, with the first...
Your client is 33 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $10,000 per year, and you advise her to invest it in the stock market, which you expect to provide an average return of 12% in the future.If she follows your advice, how much money will she have at 65? Do not round intermediate calculations. Round your answer to the nearest cent.$  How much will she...
Your client is 23 years old. She wants to begin saving for retirement, with the first...
Your client is 23 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $15,000 per year, and you advise her to invest it in the stock market, which you expect to provide an average return of 6% in the future. If she follows your advice, how much money will she have at 65? Do not round intermediate calculations. Round your answer to the nearest cent. $ How...
Your client is 40 years old. She wants to begin saving for retirement, with the first...
Your client is 40 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $15,000 per year, and you advise her to invest it in the stock market, which you expect to provide an average return of 10% in the future. a. If she follows your advice, how much money will she have at 65? Round your answer to the nearest cent. b. How much will she have...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT