a) Assuming college savings are invested in an account paying 7% interest, then what is the amount of money she will need to have available at age 18 to pay for all four years of her undergraduate education if the parents don’t want to save any more after her 18th birthday?
b) The couple plans to start saving at the end of the year (i.e. on the child’s first birthday) and to save through the 18th birthday. How much do they need to save every year to have enough money in 18 years to pay for college? (they will not save any more after the 18th birthday)
c) If the couple plans to make one savings deposit every TWO years, starting on the child’s second birthday and ending on her 18th birthday, how much will they need to save every year?
These solutions may offer step-by-step problem-solving explanations or good writing examples that include modern styles of formatting and construction of bibliographies out of text citations and references. Students may use these solutions for personal skill-building and practice. Unethical use is strictly forbidden.Answer 1:
The first step is to calculate the fees that are due every year.
Fees due at end of year 1 = $60,000
Fees due at end of year 2 = $60,000 * (1 + 4%) = $62,400
Fees due at end of year 3 = $62,400 * (1 + 4%) = $64,896...
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