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Your parents have accumulated a $140,000 nest egg. They have been planning to use this money...

Your parents have accumulated a $140,000 nest egg. They have been planning to use this money to pay college costs to be incurred by you and your sister, Courtney. However, Courtney has decided to forgo college and start a nail salon. Your parents are giving Courtney $23,000 to help her get started, and they have decided to take year-end vacations costing $9,000 per year for the next four years. Use 9 percent as the appropriate interest rate throughout this problem. Use Appendix A and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.

a. How much money will your parents have at the end of four years to help you with graduate school, which you will start then? (Round your final answer to 2 decimal places.)

b. You plan to work on a master’s and perhaps a PhD. If graduate school costs $25,100 per year, approximately how long will you be able to stay in school based on these funds? (Round your final answer to 2 decimal places.)

Solutions

Expert Solution

Money with parents at the beginning 140000
Money left with parents after paying for the sister 117000
Capital at the end of the 1st Year 127530
Reducing the travel expenses 118530
Capital at the end of the 2nd Year 129198
Reducing the travel expenses 120198
Capital at the end of the 3rd Year 131015
Reducing the travel expenses 122015
Capital at the end of the 4th Year 132997

Hence, money left with the the parents to support you $ 132,997.

Continuing from the previous part

Capital at the end of the 4th Year 132997
Masters/PhD Fees 25100
Travel Expenses 9000
Capital at the end of the 5th year 110867
Masters/PhD Fees 25100
Travel Expenses 9000
Capital at the end of the 6th year 86745
Masters/PhD Fees 25100
Travel Expenses 9000
Capital at the end of the 7th year 60452
Masters/PhD Fees 25100
Travel Expenses 9000
Capital at the end of the 8th year 31792
Masters/PhD Fees 25100
Travel Expenses 9000
Capital at the end of the 9th year 554

Hence, You may not be able to survive beyond the 9th year (we are assuming that the parent do not curtail travel expenses).

jeff jeffy answered 1 year ago
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