James and Tanisha are saving for their daughter Nalah's college education. Nalah just turned 10 (at t = 0), and she will be entering college 8 years from now (at t = 8). College tuition and expenses atState U. are currently $16,000 a year, but they are expected to increase at a rate of 3.5% a year. Nalah should graduate in 4 years--if she takes longer or wants to go to graduate school, she will be onher own. Tuition and other costs will be due at the beginning of each school year (at t = 8, 9, 10, and 11).So far, James and Tanisha have accumulated $14,000 in their college savings account (at t = 0). Their long-run financial plan is to add an additional $6,000 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 10%. How large must the annual payments at t= 5, 6, and 7 be to cover Nalah's anticipated college costs?O a. $3,501.99OOb. $1,734.75c. $3,852.19d. $1,908.23O e. $1,018.71

mes and Tanisha are saving for their daughter Nalah's college education. Nalah just turned 10 (at t = 0), and she will be entering college ate U. are currently $16,000 a year, but they are expected to increase at a rate of 3.5% a year. Nalah should graduate in 4 years--if she ta er own. Tuition and other costs will be due at the beginning of each school year (at t = 8, 9, 10, and 11). far, James and Tanisha have accumulated $14,000 in their college savings account (at t = 0). Their long-run financial plan is to add an d 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 ad 5, 6, and 7 be to cover Nalah's anticipated college costs? Oa. $3,501.99 Ob. $1,734.75 OC. $3,852.19 O d. $1,908.23 Oe. $1,018.71

mes and Tanisha are saving for their daughter Nalah's college education. Nalah just turned 10 (at t = 0), and she will be entering college ate U. are currently $16,000 a year, but they are expected to increase at a rate of 3.5% a year. Nalah should graduate in 4 years--if she ta er own. Tuition and other costs will be due at the beginning of each school year (at t = 8, 9, 10, and 11). far, James and Tanisha have accumulated $14,000 in their college savings account (at t = 0). Their long-run financial plan is to add an d 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 ad 5, 6, and 7 be to cover Nalah's anticipated college costs? Oa. $3,501.99 Ob. $1,734.75 OC. $3,852.19 O d. $1,908.23 Oe. $1,018.71

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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A father is now planning a savings program to put hisdaughter through college. She is 13, plans to enroll at the university in 5 years, and shouldgraduate 4 years later. Currently, the annual cost (for everything—food, clothing, tuition,books, transportation, and so forth) is $12,000, but these costs are expected to increase by6% annually. The college requires total payment at the start of the year. She now has $10,000in a college savings account that pays 9% annually. Her father will make six equal annualdeposits into her account; the first deposit today and the sixth on the day she starts college.How large must each of the six payments be? (Hint: Calculate the cost (inflated at 6%) foreach year of college and find the total present value of those costs, discounted at 9%, as ofthe day she enters college. Then find the compounded value of her initial $10,000 on thatsame day. The difference between the PV of costs and the amount that would be in the savingsaccount must be made up by the…

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