You just had your second child, and you expect her to go to college in 18...

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You just had your second child, and you expect her to go tocollege in 18 yrs. You plan that a four-year college will cost$33,000 each year. The payments are to be made at the beginning ofeach college year starting at t = 18. Your first child will go tocollege in 12 years which will cost $25,000 per year with the firstpayment due at t = 12. You already have $20,000 on an account thatpays 8% p.a. You plan to start depositing on that account a fixedamount of money once a year starting at t = 1 and do that until thedue date of the last tuition payment for your second child. Findthe amount of money that you shall deposit each year.

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3.8 Ratings (360 Votes)

1]	PV of the fee payable for the 1st child = 25000/1.08^12+25000/1.08^13+25000/1.08^14+25000/1.08^15 =	$ 35,512.86
2]	PV of the fee payable for the 2nd child = 33000/1.08^18+33000/1.08^19+33000/1.08^20+33000/1.08^21 =	$ 29,540.45
3]	Total of PV of college fee for both children	$ 65,053.31
4]	Less: Amount in hand	$ 20,000.00
5]	PV of installments to be made for 21 years	$ 45,053.31
6]	Amount to be deposited each year = 45053.310.081.08^21/(1.08^21-1) =	$ 4,497.77

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Transcribed Image Text

You just had your second child, and you expect her to go tocollege in 18 yrs. You plan that a four-year college will cost$33,000 each year. The payments are to be made at the beginning ofeach college year starting at t = 18. Your first child will go tocollege in 12 years which will cost $25,000 per year with the firstpayment due at t = 12. You already have $20,000 on an account thatpays 8% p.a. You plan to start depositing on that account a fixedamount of money once a year starting at t = 1 and do that until thedue date of the last tuition payment for your second child. Findthe amount of money that you shall deposit each year.