Tom and Mary James just had a baby. They heard that the cost of providinga college education for this baby will be $100,000 in 18 years. Tomnormally receives a Christmas bonus of $4,000 every year in the paycheckprior to Christmas. He read that a good stock mutual fund should pay himan average of 10 percent per year. Tom and Mary want to make sure theirson has $100,000 for college. Consider each of the following questions:a. How much must Tom invest in this mutual fund at the end of each year tohave $100,000 in 18 years?b. If the bonus is not paid until the first of the year, how much must Tominvest at the beginning of each year to have $100,000 in 18 years? c. Tom’s father said he would provide for his grandson’s education. He puts$10,000 in a government bond that pays 3 percent interest. His dad said thisshould be enough. Do you agree?d. If Mary has a savings account worth $50,000, how much must she withdrawfrom savings and set aside in this mutual fund to have the $100,000 for herson’s education in 18 years?e. If Mary has been advised to keep the $50,000 in her savings account earning4 percent compounded monthly, how much additional money would shehave to set aside in the stock mutual fund to have the $100,000 for her son’seducation in 18 years?
Tom and Mary James just had a baby. They heard that the cost of providing
a college education for this baby will be $100,000 in 18 years. Tom
normally receives a Christmas bonus of $4,000 every year in the paycheck
prior to Christmas. He read that a good stock mutual fund should pay him
an average of 10 percent per year. Tom and Mary want to make sure their
son has $100,000 for college. Consider each of the following questions:
a. How much must Tom invest in this mutual fund at the end of each year to
have $100,000 in 18 years?
b. If the bonus is not paid until the first of the year, how much must Tom
invest at the beginning of each year to have $100,000 in 18 years?
c. Tom’s father said he would provide for his grandson’s education. He puts
$10,000 in a government bond that pays 3 percent interest. His dad said this
should be enough. Do you agree?
d. If Mary has a savings account worth $50,000, how much must she withdraw
from savings and set aside in this mutual fund to have the $100,000 for her
son’s education in 18 years?
e. If Mary has been advised to keep the $50,000 in her savings account earning
4 percent compounded monthly, how much additional money would she
have to set aside in the stock mutual fund to have the $100,000 for her son’s
education in 18 years?
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