Time Value of Money Problem
Background: In the U.S. education can be very expensive, as you know, and most parents feel that they are responsible for enabling their children to go to college. This problem was valid when my children were 5 and 7. You should assume for Part 3 the market conditions prior to the recent market crash and subsequent turmoil.
I have two children, ages 5 and 7. If I wish to put money away beginning this year to pay for their college education, I need to identify the amount that I must save each year.
Child 1 will go to college in 11 years.
Child 2 will go to college in 13 years.
The annual interest rate will be 10 per cent and will be compounded annually.
I will need $25,000 per child per year of college for four years of college for each child.
How much must I put away each year beginning at the end of this year?
Part 1. Compute the annual payment to be made each year so that I will have exactly covered the required amounts when the second child completes the fourth year of college. As a simplifying assumption, we will assume that the college will allow a single tuition payment to be made at the end of each year. I want to put away the same amount every year until the obligation is completed.
Show the steps taken to solve the problem and explain why these steps are taken.
Part 2. How much would I have had to save if I had started the program when my second child was born, that is, when my children were zero and two?
Part 3. Identify some investment options that will yield the desired rate of return in the current market. Note: Real estate may not be an appropriate option because of the plan to contribute to the investment annually and to withdraw funds from the investment to pay the tuitions.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more