A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years, and she should graduate 4 years later. Currently, the annual cost (for everything food, clothing, tuition, books, transportation, and so forth) is $20,000, but these costs are expected to increase by 7% annually. The college requires total payment at the start of the year. She now has $6,000 in a college savings account that pays 10% annually. Her father will make six equal annual deposits into her account; the first deposit today and sixth on the day she starts college. How large must each of the six payments be? (Hint: Calculate the cost (inflated at 7%) for each year of college and find the total present value of those costs, discounted at 10%, as of the day she enters college. Then find the compounded value of her initial $6,000 on that same day. The difference between the PV of costs and the amount that would be in the savings account must be made up by the father's deposits, so find the six equal payments that will compound to the required amount.) Do not round intermediate calculations. Round your answer to the nearest dollar.
A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years, and she should graduate 4 years later. Currently, the annual cost (for everything food, clothing, tuition, books, transportation, and so forth) is $20,000, but these costs are expected to increase by 7% annually. The college requires total payment at the start of the year. She now has $6,000 in a college savings account that pays 10% annually. Her father will make six equal annual deposits into her account; the first deposit today and sixth on the day she starts college. How large must each of the six payments be? (Hint: Calculate the cost (inflated at 7%) for each year of college and find the total present value of those costs, discounted at 10%, as of the day she enters college. Then find the compounded value of her initial $6,000 on that same day. The difference between the PV of costs and the amount that would be in the savings account must be made up by the father's deposits, so find the six equal payments that will compound to the required amount.) Do not round intermediate calculations. Round your answer to the nearest dollar.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Please help me .
Thankyou.
Transcribed Image Text:A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years, and she should graduate 4 years later.
Currently, the annual cost (for everything - food, clothing, tuition, books, transportation, and so forth) is $20,000, but these costs are expected to increase by 7% annually. The
college requires total payment at the start of the year. She now has $6,000 in a college savings account that pays 10% annually. Her father will make six equal annual deposits into
her account; the first deposit today and sixth on the day she starts college. How large must each of the six payments be? (Hint: Calculate the cost (inflated at 7%) for each year of
college and find the total present value of those costs, discounted at 10%, as of the day she enters college. Then find the compounded value of her initial $6,000 on that same day.
The difference between the PV of costs and the amount that would be in the savings account must be made up by the father's deposits, so find the six equal payments that will
compound to the required amount.) Do not round intermediate calculations. Round your answer to the nearest dollar.
LA
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 6 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education