Question

Johanna and Ryan Younan 1.Johanna and Ryan Younan just put their two boys (grades 6 and 2) on their respective school buses for the first day of school and realized that they are growing up fast. As their financial planner, Johanna and Ryan called you and stated that they wanted to save, starting today, at the beginning of every month for the next six years (until the older child goes to college) to pay for one-half of school expenses for both children. You know that tuition, room, and board this year cost $18,000 at their selected school, and you expect 5 percent effective annual inflation for education expenses. Johanna and Ryan also said that they know the children’s grandparents are going to make a gift of $48,000 toward this cause in exactly three years. Assume that both children attend the same college for four years each. Also assume that the annual tuition bill is due at the beginning of each academic year, and the first payment is exactly seventy two months away. How much money will Johanna and Ryan need to invest on a monthly basis to meet their education goal assuming a required effective annual rate of 10.471 percent (10 percent APR with monthly compounding)?

Answer 1

Here while solving the question the parents are saving for half of the school fee and their grandparents are also contributing, so we are assuming that parents savings are for net of grandfather conribution, that is parents savings are for half tuition fee minus the grandafther contribution value at year 6.