Chapter 5.3, Problem 52E

Answer the following questions using complete sentences and your own words.

■ HANDS ON

Suppose you had a baby in $2005$ and you decided that it would be wise to start saving for his or her college education. In this exercise, you will explore how to go about doing that.

a. According to the College Board, four-year public schools cost an average of $\$5,491$ per year in $2005–2006$. Four-year private schools cost an average of $\$21,235$ year. These costs include tuition and fees, room and board, books and supplies, and personal expenses. Furthermore, four-year public schools increased $7.1\%$ from $2004–2005$, and four-year private schools increased $5.9\%$ from $2004–2005$. Use this information, as well as either the simple or compound interest formula, to predict the cost of your child’s college education in his or her freshman, sophomore, junior, and senior years for both public and private institutions. Discuss your assumptions and justify your work.

(Source: www.collegeboard.com/pay.)

b. Will you save for a public or a private institution? Why?

c. Discuss why you chose to use the simple or compound interest formula in part (a).

d. Go to the web sites of four different banks and determine the current interest rate available for an annuity of an appropriate term.

e. Determine the necessary annuity payment that will allow you to save the total amount from part (a) in time to meet your goal.