Question

Good afternoon interns,

As you all know, you are all vying for the 15 openings to be offered at the end of the internship. Another chance has come up for you to show us that you deserve one of those positions here at Firmament Financials Inc. New clients, Mr. and Mrs. Perez are planning on starting a family and would like to start saving for their child’s college education. The want to know what they can afford when their child is ready for college. They would like to utilize our Yearly College Savings Plan which grows a yearly deposit at an APR of 15% with continuous compounding. Your job is to analyze their information and come up with feasible recommendations. Their information can be found in the email they sent. Of course, you will be graded on your analysis. A grading rubric has been provided.

Good luck interns!

Dear Ms. Robles,

As satisfied customers of Firmament Financial, we of course look to you to help us save for our upcoming child’s college education. We feel that we can afford $100 per month for the 18 years until college in your College Savings Plan. We have a list of universities that we have researched with the approximate cost per year for each. Which if any of the university options will we be able to afford for our child? We would prefer to send them to an elite private university if we can afford it.

Anthony & Veronica Perez

University/College Type	Cost per Year
Elite Private	$100,000
Elite Public	$80,000
State Private	$60,000
State Public	$40,000
Out of State Community College	$6,000

Answer 1

The given information is

Monthly Deposit = $ 100

Yearly Deposit = $ 1200

Rate of Compound Interest per year = 15%

Time = 18 years

The calculation is shown in the below table

Year	Principal for the Year	Amount from Last Year	New Amount	Interest	Amount
1	1200.00	0.00	1200.00	180.00	1380.00
2	1200.00	1380.00	2580.00	387.00	2967.00
3	1200.00	2967.00	4167.00	625.05	4792.05
4	1200.00	4792.05	5992.05	898.81	6890.86
5	1200.00	6890.86	8090.86	1213.63	9304.49
6	1200.00	9304.49	10504.49	1575.67	12080.16
7	1200.00	12080.16	13280.16	1992.02	15272.18
8	1200.00	15272.18	16472.18	2470.83	18943.01
9	1200.00	18943.01	20143.01	3021.45	23164.46
10	1200.00	23164.46	24364.46	3654.67	28019.13
11	1200.00	28019.13	29219.13	4382.87	33602.00
12	1200.00	33602.00	34802.00	5220.30	40022.30
13	1200.00	40022.30	41222.30	6183.35	47405.65
14	1200.00	47405.65	48605.65	7290.85	55896.49
15	1200.00	55896.49	57096.49	8564.47	65660.97
16	1200.00	65660.97	66860.97	10029.15	76890.11
17	1200.00	76890.11	78090.11	11713.52	89803.63
18	1200.00	89803.63	91003.63	13650.54	104654.17

So after 18 years he will have $ 104654 in his account.

Considering his choices of Universities, he can afford any University of his choice to pay the first year fee. However, depending on the duration of course, he has to decide which University he wants to put his child.