John and Jessica are saving for their child's education. Their daughter is currently eight years old and will be entering college 10 years from now (t=10). College costs are currently $15,000 a year and are expected to increase at a rate of 5% a year. They expect their daughter to graduate in four years, and that all annual payments will be due at the beginning of each year (t=10, 11, 12, and 13). Right now, John and Jessica have $5,000 in their college savings account. Starting today, they plan to contribute $3,000 a year at the beginning of each of the next five years (t-0, 1, 2, 3, and 4). Then their plan is to make six equal annual contributions at the end of each of the following six years (t=5, 6, 7,8, 9, and 10). Their investment account is expected to have an annual return of 12%. How large of an annual payment do they have to make in the subsequent six years (t=5, 6, 7, 8, 9, and 10) in order to meet their child's anticipated college costs?
John and Jessica are saving for their child's education. Their daughter is currently eight years old and will be entering college 10 years from now (t=10). College costs are currently $15,000 a year and are expected to increase at a rate of 5% a year. They expect their daughter to graduate in four years, and that all annual payments will be due at the beginning of each year (t=10, 11, 12, and 13). Right now, John and Jessica have $5,000 in their college savings account. Starting today, they plan to contribute $3,000 a year at the beginning of each of the next five years (t-0, 1, 2, 3, and 4). Then their plan is to make six equal annual contributions at the end of each of the following six years (t=5, 6, 7,8, 9, and 10). Their investment account is expected to have an annual return of 12%. How large of an annual payment do they have to make in the subsequent six years (t=5, 6, 7, 8, 9, and 10) in order to meet their child's anticipated college costs?
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 39P
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Question
by using mathematical formula (not excel), find how large must the annual payments be in the subsequent 6 years (t = 5, 6, 7, 8, 9, and 10) to meet their daughter’s anticipated college costs?
*ANS: 4411 DOLLARS
Transcribed Image Text:John and Jessica are saving for their child's education. Their daughter is currently eight years
old and will be entering college 10 years from now (t=10). College costs are currently
$15,000 a year and are expected to increase at a rate of 5% a year. They expect their daughter
to graduate in four years, and that all annual payments will be due at the beginning of each
year (t=10, 11, 12, and 13).
Right now, John and Jessica have $5,000 in their college savings account. Starting today,
they plan to contribute $3,000 a year at the beginning of each of the next five years (t=0, 1, 2,
3, and 4). Then their plan is to make six equal annual contributions at the end of each of the
following six years (t=5, 6, 7,8, 9, and 10). Their investment account is expected to have an
annual return of 12%. How large of an annual payment do they have to make in the
subsequent six years (t=5, 6, 7, 8, 9, and 10) in order to meet their child's
anticipated college costs?
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