Advanced Time Value of Money Problems Your child was just born and you are planning for...

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Finance

Advanced Time Value of Money Problems
Your child was just born and you are planning for his/hercollege education. Based on your wonderful experience in FinancialEconomics you decide to send your child to Hofstra University aswell. You anticipate the annual tuition to be $60,000 per year forthe four years of college. You plan on making equal deposits onyour childâ€™s birthday every year starting today, the day of yourchildâ€™s birth. No deposits will be made after starting college. Thefirst tuition payment is due in exactly 18 years from today (theday your child turns 18 â€“ no deposit required, i.e. last deposit ison 17th birthday). Assume the annual expected return on yourinvestments is 10% over this period.
(i) Calculate the annual deposit.
(ii) Calculate the amount needed if only equal annual depositsare made on birthdayâ€™s 5-10 inclusive.
(iii) Calculate the amount needed if two equal annual depositsare made on birthdayâ€™s 5 and 13.
(iv) Answer part (i), now assume tuition rises 10% per year.
(v) Answer part (i) assuming first deposit will be made on yourchildâ€™s 1st birthday. All other information is the same. What isthe annual tuition payment? How does it compare to part (i)? Isyour answer surprising?

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3.8 Ratings (755 Votes)

Tution Fees per years is 60000 for 4 years Assuming that tution fees is to be made at the beginning of every year Expected Return on investment is 10 i Present value of Investment required at the end of 17th year 60000 60000PVIFA10 3 years 209211 Annual See Answer

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