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y $16,000 a year and are expected to uate in 4 years (if Paige wants to go to costs will be due at the beginning of e nd Stephanie have built up $9,000 in n is to contribute $3,000 a year at the

y $16,000 a year and are expected to uate in 4 years (if Paige wants to go to costs will be due at the beginning of e nd Stephanie have built up $9,000 in n is to contribute $3,000 a year at the

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 33P
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the solution given has the answer 3872 dollars, but why isn't -3872 dollars? As I've underlined in the second pic, shouldn't it be -15550.60 dollars instead of 15550.60 dollars? please explain I'm confused...

Nathan and Stephanie are saving for their daughter's college education. Their daughter, Paige, is now 8 years old and will be entering college 10 years from now (t = 10). College tuition expenses at State U. are currently $16,000 a year and are expected to increase at a rate of 4% a year. They expect Paige to graduate in 4 years (if Paige wants to go to graduate school, she's on her own). Tuition and other costs will be due at the beginning of each school year (at t = 10, 11, 12, and 13). So far, Nathan and Stephanie have built up $9,000 in the college savings account. Their long-run financial plan is to contribute $3,000 a year at the beginning of each of the next five years (at t= 0, 1, 2, 3, and 4). Then they plan to make 6 equal annual contributions at the end of each of the following 6 years (t = 5, 6, 7, 8, 9, and 10). Their investment account is expected to earn 8%. 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? and
Transcribed Image Text:Nathan and Stephanie are saving for their daughter's college education. Their daughter, Paige, is now 8 years old and will be entering college 10 years from now (t = 10). College tuition expenses at State U. are currently $16,000 a year and are expected to increase at a rate of 4% a year. They expect Paige to graduate in 4 years (if Paige wants to go to graduate school, she's on her own). Tuition and other costs will be due at the beginning of each school year (at t = 10, 11, 12, and 13). So far, Nathan and Stephanie have built up $9,000 in the college savings account. Their long-run financial plan is to contribute $3,000 a year at the beginning of each of the next five years (at t= 0, 1, 2, 3, and 4). Then they plan to make 6 equal annual contributions at the end of each of the following 6 years (t = 5, 6, 7, 8, 9, and 10). Their investment account is expected to earn 8%. 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? and
Step-3: Calculation of Annual Payments in the subsequent 6 years (5,6,7,8,9 and 10) is as follows: Here, Interest Rate will be 8%+4%= 12%, because we will consider the inflation rate as well -Time Period 1-(1+Interest Rate) Future Value Present Value=Annual Payment × + (1+ Interest Rate Time Period Interest Rate $29, 844. 20352=Annual Payment × 1-(1+12%) $89,601.293034 + 12 (1+.12)6 $29, 844. 20352=Annual Payments x 4. 111407323 + $45, 394. 803548 $15, 550. 600028=Annual Payments x 4. 111407323 $15,550.600028 Аппual Payments- 4.111407323 =$3, 782. 3058644 $3, 782 Answer: Annual Payment in the subsequent 6 years (5,6,7,8,9 and 10) is $3,782
Transcribed Image Text:Step-3: Calculation of Annual Payments in the subsequent 6 years (5,6,7,8,9 and 10) is as follows: Here, Interest Rate will be 8%+4%= 12%, because we will consider the inflation rate as well -Time Period 1-(1+Interest Rate) Future Value Present Value=Annual Payment × + (1+ Interest Rate Time Period Interest Rate $29, 844. 20352=Annual Payment × 1-(1+12%) $89,601.293034 + 12 (1+.12)6 $29, 844. 20352=Annual Payments x 4. 111407323 + $45, 394. 803548 $15, 550. 600028=Annual Payments x 4. 111407323 $15,550.600028 Аппual Payments- 4.111407323 =$3, 782. 3058644 $3, 782 Answer: Annual Payment in the subsequent 6 years (5,6,7,8,9 and 10) is $3,782
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