Question

Jamal and Nora are interested in saving money for their son's education. Today is their
son's 8th birthday. Their son will enter college ten years from now on his 18th birthday,
and will attend college for four years. All college costs are due at the beginning of the
year, so the couple will have to make payments on their son's 18th, 19th, 20th and 21st
birthdays (t = 10, 11, 12, 13). They estimate that the college their son wants to attend will
cost $40,000 the first year (t = 10) and that the costs will increase 8 percent each year
(the final college payment will be made 13 years from now).

Currently, Jamal and Nora have $30,000 in an investment account. They also plan to
contribute a fixed amount at the end of each of the next ten years (t = 1, 2, 3, ... 10).
Their invested money will be in an account which pays 10 percent interest compounded
annually. How much money do Jamal and Nora need to contribute to the account in
each of the next ten years?

Answer 1