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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