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.

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
icon
Related questions
Question
100%

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. 

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 5 images

Blurred answer
Knowledge Booster
Financial Planning
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education