Parents decided to set aside money for their child's higher education. The objective is to provide $45,000 in today's dollars after 12 years. Their financial analyst forecasted that the average annual inflation to be 4.5% for the next 12 years. A bank offered a medium risk mutual fund over the next 12 years. The parents will deposit one sum of money now and it is to be cashed by the child after 12 years. If the amount of money available now for deposit is $50,000, what is the minimum rate of return (interest rate) on the educational investment account so that the parents can achieve their objective?

Parents decided to set aside money for their child's higher education. The objective is to provide $45,000 in today's dollars after 12 years. Their financial analyst forecasted that the average annual inflation to be 4.5% for the next 12 years. A bank offered a medium risk mutual fund over the next 12 years. The parents will deposit one sum of money now and it is to be cashed by the child after 12 years. If the amount of money available now for deposit is $50,000, what is the minimum rate of return (interest rate) on the educational investment account so that the parents can achieve their objective?

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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On January 1, you plan to take a trip around the world upon graduation four years from now. Your grandmother wants to deposit sufficient funds for this trip in an investment account for you. On the basis of a budget, you estimate that the trip currently would cost $15,000. Being the generous and sweet lady she is, your grandmother decided to deposit $3,500 in the fund at the end of each of the next four years, starting on December 31, 2021. The account will earn 6 percent annual Interest, which will be added to the account at each year-end. (Future Value of $1. Present Value of $1. Future Value Annulty of $1. Present Value Annulty of $1, Financial Calculator) (Use tables, Excel, or a financial calculator.) Required: 1. How much money will you have for the trip at the end of year 4 (1.e., after four deposits)? 2. What is the total amount of Interest earned over the four years? 3. How much Interest revenue did the fund earn in each of the four years, starting in 2021? Complete this…
Tom and Sandy have set up a sinking fund in order to have $21,000.00 in 5 years for their child's college education. How much should be paid monthly into an ordinary annuity earning 7.46% compounded monthly so that they reach their goal? How much interest is earned during the last year? (Note: Your answer is a dollar amount and should include a dollar sign)
Use the savings plan formula to answer the following question. Your goal is to create a college fund for your child. Suppose you find a fund that offers an APR of 5%. How much should you deposit monthly to accumulate $88,000 in 12 years? You should invest $ each month. (Do not round until the final answer. Then round to two decimal places as needed.)
1. A civil engineer planning for her retirement places 10% of her salary each year into a high-technology stock fund. If her salary this year (end of year 1) is $160,000 and she expects her salary to increase by 3% each year, what will be the future worth of her retirement fund after 15 years provided it earns 7% per year? 2. A company that manufactures purgable hydrogen sulfide monitors will make deposits such that each one is 7% larger than the preceding one. How large must the first deposit at the end of year I be if the deposits extend through year 10 and the fourth deposit is $5550? Use an interest rate of 10% per year.
2. (a) A college student, Amy, decides to fund a retirement account with $2000 per year for 8 years, with the first deposit made one year from today. The rate of return will be 10%. How much will she have in her account when she retires in 40 years? (b) Amy’s friend, Dacio, decides he will start funding his retirement account 8 years from now (first payment in 9 years). He then will invest $2000 each year for 32 years. If his rate of return is 10%, how much will he have when he retires in 40 years?
The parents of a 3-year old child decide they need to start saving for their child's college fund. They want to have $22,000 in the fund in 15 years. The fund has an APR of 3.4%. What monthly deposit is required? Round your answer to the nearest cent.
Use the savings plan formula to answer the following question. Your goal is to create a college fund for your child. Suppose you find a fund that offers an APR of 4%. How much should you deposit monthly to accumulate $87,000 in 15 years? You should invest $ each month. (Do not round until the final answer. Then round to two decimal places as needed.)
The parents of a newborn decide to make deposits into an educational savingsaccount on each of their daughter's birthdays, starting with her first birthday.Assume that the educational savings account will return a constant 5.5% per year.The parents plan to deposit $2 200 on every of their daughter's future birthdays.How much money could they alternatively deposit on their daughter's birth date(today) to have the same amount available on her 18th birthday?
New parents wish to save for thier newborn's education and wish to have $36,000 at the end of 18 years. How much should the parents place at the end of each year into a savings account that earns an annual rate of 5.6% compounded annually? (round your answer to two decimal places). How much interst would they earn over the life of the account? Determine the value of the fund after 12 years.
Jennifer is planning a trip to Alaska in 5 years. She has calculated that she will need $15,000 to cover her expenses. Her bank offers money market investments at a rate of 4.5% compounded annually. What should Jennifer invest now to have the needed funds?
Arnett College predicts that in 18 years it will take $⁢350,000 to attend the college for four years. Hannah has a substantial amount of cash and wishes to invest a lump sum of money for her child’s college fund. How much should Hannah put aside in an account with an APR of 8% compounded monthly in order to have $⁢350,000 in the account in 18 years? Round your answer to the nearest cent, if necessary.
you have just won the lottery, and wish to ensure that will have $350,000 in 11 years to send your child to college. if your bank pays 4.46%, hours much must you deposit today to accumulate these funds?

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