A couple wants to save for their daughter’s college expenses. The daughter will enter college eight years from now and will need $40,000, $41,000, $42,000 and $43,000 in actual dollars over four college years. Assume that these college payments will be made at the beginning of the school year. The future general inflation rate is estimated to be 6% per year and the annual inflation-free interest rate is 5%. What is the equal amount, in actual dollars, the couple must save each year until their daughter goes to college? A. $11,945 B. $12,142 C. $12,538 D. $11,838
A couple wants to save for their daughter’s college expenses. The daughter will enter college eight years from now and will need $40,000, $41,000, $42,000 and $43,000 in actual dollars over four college years. Assume that these college payments will be made at the beginning of the school year. The future general inflation rate is estimated to be 6% per year and the annual inflation-free interest rate is 5%. What is the equal amount, in actual dollars, the couple must save each year until their daughter goes to college?
The amount that the lender usually adds to the principal sum that the borrower owes is referred to as the interest rate. The borrower is mainly responsible for paying the interest rate. When the time value of money is being considered, a person who deposits money in a bank or other financial institution also receives additional income in the form of interest. This is because the beneficiary of the money is the bank or other financial institution.
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