Step 7 only please. Thank you!
Introduction
You are a financial planner and a new client, Kristina came toyour office with the following question: How much should she saveannually given her goals?
- Kristina is saving for two goals: one is to fund her childKatryna’s college education and the other is to retire.
- Katryna will begin college in exactly 18 years, and Kristinawill retire on the same day.
- College costs for state institutions are currently running at$6,000 per year, and have historically increased at a rate of 5%per year.
- Kristina will pay for a 4-year undergraduate education.
- Kristina estimates she will live 30-year past her retirement,during which time she would like to pay herself a $60,000 per yearsalary (first payment occurs at the end of year 18, or beginning ofyear 19).
- On the day she retires, Kristina would like to pay cash for aBMW Z4 convertible or whatever similar model BMW produces at thattime. A Z4 cost $55,000 and BMW has increased price at a rate of 7%per year.
- Kristina will save annually beginning in exactly one year—18equal payments spread over time.
- The date of the last savings installment coincides with thefirst tuition payment (and the day of Kristina retirement).
- Kristina estimates an 8% expected return on all investmentsover the period.
- How much does she have to save each year to accomplish theabove goals?
Step 1: What will be the value of the Z4 ofequivalent at the time of purchase? 10 points
Step 2: What will be the value of the 4 annualtuition payments? 15 points
Step 3: What will be the present value of the 4annual tuition payments? 10 points
Step 4: What will be the present value of the30 years of salary payments? 10 points
Step 5: What will be the value of Kristina’ssavings when she retires? 10 points
Step 6: How much does Kristina need to saveevery year? 10 points
Step 7: Create a table showing all the additions andsubtraction to the savings accounts and the value at the end ofeach year. (Hint: the value should be close to zero at the end) 25points
