PROBLEM #1: TIME VALUE CONCEPTS; In each case you must show the formula you are using to complete your calculations, and label your responses carefully and completely. Identify the known and unknown variables needed to answer the questions. A) When Liam Corbett was born, his grandparents opened a 529 college savings plan for him so that he had enough money to pay for college once he turned 18. His college education is expected to cost $225,000 on the day he turns 18 years old. Determine if there will be enough in the account given the following assumptions (Show your calculations): Assumption #1: The grandparents contribute $6,200 per year starting the day Liam is born and the account earns an average annual rate of return of 7%. Assumption # 2: The grandparents contribute $5,000 per year starting the day Liam is born and the account earns an average annual rate of return of 7%. Assumption # 3: The grandparents contribute $5,000 per year starting the day Liam is born and the account earns an average annual rate of return of 9%. Assumption #4: The grandparents contribute $8,500 per year starting the day Liam is born and the account earns an average annual rate of return of 4%. Assumption #5: The grandparents contribute $9,500 per year starting the day Liam is born until his ninth birthday and make no further contributions until his 18th birthday. The account earns an average annual rate of return of 7%. In each case calculate how much the account will be over or short of the $225,000 goal. Make sure all dollar amounts are rounded to the nearest dollar. Ad= i= n= FV Assumption 1 6,200 7.00% 18 Assumption 2 Assumption 3 Assumption 4 Assumption 5 5,000 5,000 8,500 9,500 7.00% 9.00% 4.00% 7.00%
PROBLEM #1: TIME VALUE CONCEPTS; In each case you must show the formula you are using to complete your calculations, and label your responses carefully and completely. Identify the known and unknown variables needed to answer the questions. A) When Liam Corbett was born, his grandparents opened a 529 college savings plan for him so that he had enough money to pay for college once he turned 18. His college education is expected to cost $225,000 on the day he turns 18 years old. Determine if there will be enough in the account given the following assumptions (Show your calculations): Assumption #1: The grandparents contribute $6,200 per year starting the day Liam is born and the account earns an average annual rate of return of 7%. Assumption # 2: The grandparents contribute $5,000 per year starting the day Liam is born and the account earns an average annual rate of return of 7%. Assumption # 3: The grandparents contribute $5,000 per year starting the day Liam is born and the account earns an average annual rate of return of 9%. Assumption #4: The grandparents contribute $8,500 per year starting the day Liam is born and the account earns an average annual rate of return of 4%. Assumption #5: The grandparents contribute $9,500 per year starting the day Liam is born until his ninth birthday and make no further contributions until his 18th birthday. The account earns an average annual rate of return of 7%. In each case calculate how much the account will be over or short of the $225,000 goal. Make sure all dollar amounts are rounded to the nearest dollar. Ad= i= n= FV Assumption 1 6,200 7.00% 18 Assumption 2 Assumption 3 Assumption 4 Assumption 5 5,000 5,000 8,500 9,500 7.00% 9.00% 4.00% 7.00%
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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I already have the values I just need someone to explain the calculations, such as what numbers are used to get the
Transcribed Image Text:PROBLEM #1: TIME VALUE CONCEPTS; In each case you must show the formula you are using to complete your calculations,
and label your responses carefully and completely. Identify the known and unknown variables needed to answer the
questions.
A) When Liam Corbett was born, his grandparents opened a 529 college savings plan for him so that he had enough money
to pay for college once he turned 18. His college education is expected to cost $225,000 on the day he turns 18 years
old. Determine if there will be enough in the account given the following assumptions (Show your calculations):
Assumption #1: The grandparents contribute $6,200 per year starting the day Liam is born and the account earns an
average annual rate of return of 7%.
Assumption #2: The grandparents contribute $5,000 per year starting the day Liam is born and the account earns an
average annual rate of return of 7%.
Assumption #3: The grandparents contribute $5,000 per year starting the day Liam is born and the account earns an
average annual rate of return of 9%.
Assumption #4: The grandparents contribute $8,500 per year starting the day Liam is born and the account earns an
average annual rate of return of 4%.
Assumption #5: The grandparents contribute $9,500 per year starting the day Liam is born until his ninth birthday and
make no further contributions until his 18th birthday. The account earns an average annual rate of return of 7%.
In each case calculate how much the account will be over or short of the $225,000 goal. Make sure all dollar amounts
are rounded to the nearest dollar.
Ad=
i=
n=
FV
Assumption 1 Assumption 2 Assumption 3 Assumption 4 Assumption 5
6,200
5,000
5,000
8,500
9,500
7.00%
7.00%
9.00%
4.00%
7.00%
18
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