FINANCE-Jean has an 18 year-old daughter that is going to college

QUESTION

You must show your work when solving these problems. Please use the cash flow method from the
examples in the content, unless you are already familiar with another method
and can show your work using the steps of that method.
1)
Jean has an 18 year-old daughter that is going
to college this year for five years. The
tuition is $18,000 per year and is expected to increase at 5% per year. She believes she can earn 7% per year on her
investment. What lump-sum must Jean
deposit today to pay for her daughter’s education? (2 points)
2)
Jennifer wants to save for her son’s
education. He son was born today and
will go to college at age 18 for five years.
Tuition is currently $15,000 per year, and tuition inflation is
estimated to be 7%. Jennifer believes
she can earn an 11% after tax return on her investment. How much must Jennifer save at the end of
each year if she wants to make her last payment at the beginning of her son’s
first year of college? (Hint: Step 1, N=17 and Step 2, N=18) (4 points)
3)
Assume the same scenario as problem 2, but now
Jennifer wants to save until the beginning of her son’s last year of
college. How much does Jennifer have to
save at the end of each year to meet her goal? (Hint: N=22 for Step 2) (3 points)
4)
Assume the same scenario as problem 3, but
instead of Jennifer making payments at the end of each year, assume she makes
her payments at the beginning of each year.
How much does Jennifer have to save at the beginning of each year to
meet her goal? (Hint: Change to BEGIN mode and N=23 for Step 2) (3 points)
5)
Julie has two children, Beau age 5 and Alex age
2, that she wants to start saving for their college education. Currently, tuition is $10,000 per year and
tuition inflation is 6%. Julie believes
she can earn a 10% after tax return on her investment. She expects her children to start college at
age 18 and go to college for 4 years.
Julie wants her last savings payment to be made when the oldest child
starts college. How much must Julie save
at the end of each year to reach this education funding goal? (8 points)

ANSWER:

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