John and Daphne are saving for their daughter Ellen's college education. Ellen just turned 10 (at t = 0), and she will be entering college 8 years from now (at t = 8). College tuition and expenses at State U. are currently $14,500 a year, but they are expected to increase at a rate of 3.5% a year. Ellen should graduate in 4 years--if she takes longer or wants to go to graduate school, she will be on her own. Tuition and other costs will be due at the beginning of each school year (at t= 8, 9, 10, and 11). So far, John and Daphne have accumulated $14,000 in their college savings account (at t = 0). Their long-run financial plan is to add an additional $5,000 in each of the next 4 years (at t = 1, 2, 3, and 4). Then they plan to make 3 equal annual contributions in each of the following years, t = 5, 6, and 7. They expect their investment account to earn 9%. How large must the annual payments at t = 5, 6, and 7 be to cover Ellen's anticipated college costs? a. $3,326.86 b. $2,970.41 c. $2,584.26 d. $3,505.08 e. $2,881.30 >

John and Daphne are saving for their daughter Ellen's college education. Ellen just turned 10 (at t = 0), and she will be entering college 8 years from now (at t = 8). College tuition and expenses at State U. are currently $14,500 a year, but they are expected to increase at a rate of 3.5% a year. Ellen should graduate in 4 years--if she takes longer or wants to go to graduate school, she will be on her own. Tuition and other costs will be due at the beginning of each school year (at t= 8, 9, 10, and 11). So far, John and Daphne have accumulated $14,000 in their college savings account (at t = 0). Their long-run financial plan is to add an additional $5,000 in each of the next 4 years (at t = 1, 2, 3, and 4). Then they plan to make 3 equal annual contributions in each of the following years, t = 5, 6, and 7. They expect their investment account to earn 9%. How large must the annual payments at t = 5, 6, and 7 be to cover Ellen's anticipated college costs? a. $3,326.86 b. $2,970.41 c. $2,584.26 d. $3,505.08 e. $2,881.30 >

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

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Your son Tommy was just born today (Year O), and you are planning for his college education. You would like to make equal deposits every 26 weeks (assume a 52-week year) into a college savings account starting in Year 1 and ending in Year 21 (a total of 41 deposits), so that Tommy can make annual withdrawals in Year 18, 19, 20, and 21 for tuition. Tuition is currently (Year 0) $2,900/year, and it is expected to grow at 4% / year for each of the next 10 years, and then at 5%/year for all years after. You can earn a nominal annual rate of 8.45%, with interest compounded weekly (52-week year) in a college savings account. How much must each of the 41 deposits be to exactly fund the expected tuition expense? O $277.87 O $264.49 O $258.02 O $248.10 O $287.80
Courtney wants to retire in 15 years when she turns 62. She wants to have enough money to replace 75% of her current income less what she expects to receive from Social Security at the beginning of each year. Courtney expects to receive $25,714 per year from Social Security in today’s dollars at full retirement age of 67. However, she will take Social Security early at age 62, when she retires. Courtney is aggressive and wants to assume an 8% annual investment rate of return and that inflation will be 3% per year. Based on her family history, Courtney expects that she will live 30 years in retirement (age 92). If Courtney currently earns $80,000 per year and she expects her raises to equal the inflation rate, how much does she need at retirement to fulfill her retirement goals? $874,794. $1,022,807. $1,072,458. $1,583,152.
Nathan and Jordan are saving for their daughter Kaliah's college education. Kaliah just turned 10 (at t = 0), and she will be entering college 8 years from now (at t = 8). College tuition and expenses at State U. are currently $14,500 a year, but they are expected to increase at a rate of 3.5% a year. Kaliah should graduate in 4 years--if she takes longer or wants to go to graduate school, she will be on her own. Tuition and other costs will be due at the beginning of each school year (at t = 8, 9, 10, and 11). So far, Nathan and Jordan have accumulated $12,000 in their college savings account (at t = 0). Their long-run financial plan is to add an additional $5,500 in each of the next 4 years (at t = 1, 2, 3, and 4). Then they plan to make 3 equal annual contributions in each of the following years, t = 5, 6, and 7. They expect their investment account to earn 10%. How large must the annual payments at t = 5, 6, and 7 be to cover Kaliah's anticipated college costs? O a. $3,779.16 O b.…
The parents of a newborn baby would like to put money away today to cover 100% of the child's expected total 4 - years of college tuition. The first tuition payment is due exactly 18 years from today, and the next three payments are due at the end of years 19, 20 and 21. Suppose that the parents estimate that the cost of tuition will be $86,000 per year for the first three years, but that the fourth year's tuition will be $96,000. Which comes closest to the amount of money that needs to be set aside today if the interest rate is 6% ? A. $ 104, 719 B. $ 136, 639 C. $ 16,857 D. $ 113, 608 E. $ 198, 781
Lauren is the proud mother of a new baby girl and plans tosend her daughter to college 19 years from now. Lauren wants tomake a deposit each summer in a special account at her bank whichpays 8% (compounded annually) so that she will have enough moneyset aside that she can withdraw $21,000 at the beginning of eachyear to pay tuition, room and board, etc., for each year of herfour-year education. How much will Lauren have to deposit at theend of each year in order to have enough to pay for her daughter's education?
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You plan to be a doting parent for your three adorable tots (you love to plan ahead). You plan to set up a fund to pay for their law school educations immediatley after their undergraduate studies. The fund will be set up to pay each little one $175,000 for the first year of school, then increase 4% per year through graduation. Assume the kids graduate after 3 years of law school. The oldest tot begins law school in 18 years; the second one starts two years later, and the last little one starts one year after the second. You have set aside $75,000 thus far. You earn 8% on your investments. Next year's salary is expected to be $220,000. What fraction of your salary must you set aside if you get raises of 2% per year to make your vision a reality? You start your savings based on income one year from now and you make your last payment on the first child's first day at law school.
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A couple will retire in 40 years; they paln to spend about $23,000 a retirement, which should last about 20 years. They believe that they can earn 9% interest on retirement savings. a. If they make annual payments into a savings plan, how much will they need to save each year? b. How would the answer to part (a) change if the couple realizes that in 15 years they will need to spend $63,000 on their childs college education?

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