Equal annual saving that will compound to the required amount. Introduction: Annuity : It is an agreement under which a person pays the lump sum payment or the number of small transactions and in return he receives the amount at later date or upon annuitization. The purpose of the annuity is to not the break the flow of income after retirement.

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Chapter 5, Problem 40P

Summary Introduction

To calculate: Equal annual saving that will compound to the required amount.

Introduction:

Annuity:

It is an agreement under which a person pays the lump sum payment or the number of small transactions and in return he receives the amount at later date or upon annuitization. The purpose of the annuity is to not the break the flow of income after retirement.

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A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years, and she should graduate 4 years later. Currently, the annual cost (for everything - food, clothing, tuition, books, transportation, and so forth) is $18,000, but these costs are expected to increase by 6% annually. The college requires total payment at the start of the year. She now has $7,000 in a college savings account that pays 9% annually. Her father will make six equal annual deposits into her account; the first deposit today and sixth on the day she starts college. How large must each of the six payments be? Do not round intermediate calculations. Round your answer to the nearest dollar. (Hint: Calculate the cost (inflated at 6%) for each year of college and find the total present value of those costs, discounted at 9%, as of the day she enters college. Then find the compounded value of her initial $7,000 on that same day. The difference…