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In: Finance

Suppose that a young couple has just had their first baby and they wish to insure...

Suppose that a young couple has just had their first baby and they wish to insure 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 9%. The parents deposit $2400 on their daughter's first birthday and plan to increase the size of their deposits by 7% 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 ________.

Solutions

Expert Solution

Answer:- 160462.577

Explanation:- To calculate the amount available on the daughter's 18th birthday the following should be taken into cognizance

First, the yearly deposit increases by 7% every year, therefore year one is $2,400 but year 2 is $2,400 x1.07= $2,568 and continuing like that.

Secondly, the total deposit pre year is calculated as annual deposit for the year x (1+interest rate)∧year on a descending basis.

Following is the excel sheet showing the calculation of the amount available for the daughter's college expenses on her 18th birthday:-

Following is the Formula Sheet of above excel sheet for easy understanding of the formulas used:-  

jeff jeffy answered 1 year ago
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