Nathan and Stephanie are saving for their daughter's college education. Their daughter, Paige, is now 8 years old and will be entering college 10 years from now (t = 10). College tuition and expenses at State U. are currently $16,000 a year and are expected to increase at a rate of 4% a year. They expect Paige to graduate in 4 years (if Paige wants to go to graduate school, she's on her own). Tuition and other costs will be due at the beginning of each school year (at t = 10, 11, 12, and 13). So far, Nathan and Stephanie have built up $9,000 in the college savings account. Their long-run financial plan is to contribute $3,000 a year at the beginning of each of the next five years (at t= 0, 1, 2, 3, and 4). Then they plan to make 6 equal annual contributions at the end of each of the following 6 years (t= 5, 6, 7, 8, 9, and 10). Their investment account is expected to earn 8%. How large must the annual payments be in the subsequent 6 years (t = 5, 6, 7, 8, 9, and 10) to meet their daughter's anticipated college costs?
Nathan and Stephanie are saving for their daughter's college education. Their daughter, Paige, is now 8 years old and will be entering college 10 years from now (t = 10). College tuition and expenses at State U. are currently $16,000 a year and are expected to increase at a rate of 4% a year. They expect Paige to graduate in 4 years (if Paige wants to go to graduate school, she's on her own). Tuition and other costs will be due at the beginning of each school year (at t = 10, 11, 12, and 13). So far, Nathan and Stephanie have built up $9,000 in the college savings account. Their long-run financial plan is to contribute $3,000 a year at the beginning of each of the next five years (at t= 0, 1, 2, 3, and 4). Then they plan to make 6 equal annual contributions at the end of each of the following 6 years (t= 5, 6, 7, 8, 9, and 10). Their investment account is expected to earn 8%. How large must the annual payments be in the subsequent 6 years (t = 5, 6, 7, 8, 9, and 10) to meet their daughter's anticipated college costs?
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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please show working step by step without using excel.
*the answer is 3782
Transcribed Image Text:Nathan and Stephanie are saving for their daughter's college education. Their daughter,
Paige, is now 8 years old and will be entering college 10 years from now (t = 10). College tuition
expenses at State U. are currently $16,000 a year and are expected to increase at a rate of
4% a year. They expect Paige to graduate in 4 years (if Paige wants to go to graduate school,
she's on her own). Tuition and other costs will be due at the beginning of each school year (at t
= 10, 11, 12, and 13). So far, Nathan and Stephanie have built up $9,000 in the college savings
account. Their long-run financial plan is to contribute $3,000 a year at the beginning of each of
the next five years (at t= 0, 1, 2, 3, and 4). Then they plan to make 6 equal annual contributions
at the end of each of the following 6 years (t = 5, 6, 7, 8, 9, and 10). Their investment account is
expected to earn 8%. How large must the annual payments be in the subsequent 6 years (t= 5,
6, 7, 8, 9, and 10) to meet their daughter's anticipated college costs?
and
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