2. A father is planning a savings program to put his daughter through university. His daughter is now 13 year old. She plans to enroll at the university in 5 years, and it should take her 4 years to complete her education. Currently, the cost per year (for everything - her food, clothing, tuition, books, transportation, and so forth) is GH¢ 12,000 per year. This cost is expected to remain constant throughout the four-year university education. The daughter recently received GH¢ 7,500 from her grandfathers, estate; this money will be invested at a rate of 8% to help meet the costs of the daughter's education. The rest of the costs will be met by money the father will deposit in a savings account which also earns 8 percent compound interest per year. He will make 5 equal deposits into the account, one deposit per annum starting one year from now until his daughter starts university. These deposits will begin one year from now. (Assume that school fees are paid at the beginning of the year) a) What will be the present value of the cost of 4 years of education at the time the daughter turns 18? b) What will be value of the GH¢ 7,500 that the daughter received from her grandfather's estate when she starts college at 18? c) If the father is planning to make the first of the 5 deposits one year from now, how large must each deposit be for him to able to put his daughter through college?
2. A father is planning a savings program to put his daughter through university. His daughter is now 13 year old. She plans to enroll at the university in 5 years, and it should take her 4 years to complete her education. Currently, the cost per year (for everything - her food, clothing, tuition, books, transportation, and so forth) is GH¢ 12,000 per year. This cost is expected to remain constant throughout the four-year university education. The daughter recently received GH¢ 7,500 from her grandfathers, estate; this money will be invested at a rate of 8% to help meet the costs of the daughter's education. The rest of the costs will be met by money the father will deposit in a savings account which also earns 8 percent compound interest per year. He will make 5 equal deposits into the account, one deposit per annum starting one year from now until his daughter starts university. These deposits will begin one year from now. (Assume that school fees are paid at the beginning of the year) a) What will be the present value of the cost of 4 years of education at the time the daughter turns 18? b) What will be value of the GH¢ 7,500 that the daughter received from her grandfather's estate when she starts college at 18? c) If the father is planning to make the first of the 5 deposits one year from now, how large must each deposit be for him to able to put his daughter through college?
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 38P
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Transcribed Image Text:2. A father is planning a savings program to put his daughter through university. His daughter
is now 13 year old. She plans to enroll at the university in 5 years, and it should take her 4
years to complete her education. Currently, the cost per year (for everything – her food,
clothing, tuition, books, transportation, and so forth) is GH¢ 12,000 per year.
This cost is expected to remain constant throughout the four-year university education. The
daughter recently received GH¢ 7,500 from her grandfathers, estate; this money will be
invested at a rate of 8% to help meet the costs of the daughter's education.
The rest of the costs will be met by money the father will deposit in a savings account
which also earns 8 percent compound interest per year. He will make 5 equal deposits into
the account, one deposit per annum starting one year from now until his daughter starts
university. These deposits will begin one year from now. (Assume that school fees are paid
at the beginning of the year)
a) What will be the present value of the cost of 4 years of education at the time the
daughter turns 18?
b) What will be value of the GH¢ 7,500 that the daughter received from her
grandfather's estate when she starts college at 18?
c) If the father is planning to make the first of the 5 deposits one year from now, how
large must each deposit be for him to able to put his daughter through college?
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