FIN 534 RANK Change The World /fin534rank.com FIN 534 RANK Change The World /fin534rank.com | Page 54

d. $4,313
e. $4,528
5. John and Daphne are saving for their daughter Ellen\'s college
education. Ellen just turned 10 at (t = 0), and she will be entering college
8 years from now (at t = 8). College tuition and expenses at State U. are
currently $14,500 a year, but they are expected to increase at a rate of
3.5% a year. Ellen should graduate in 4 years--if she takes longer or
wants to go to graduate school, she will be on her own. Tuition and other
costs will be due at the beginning of each school year (at t = 8, 9, 10, and
11).
So far, John and Daphne have accumulated $15,000 in their college
savings account (at t = 0). Their long-run financial plan is to add an
additional $5,000 in each of the next 4 years (at t = 1, 2, 3, and 4). Then
they plan to make 3 equal annual contributions in each of the following
years, t = 5, 6, and 7. They expect their investment account to earn 9%.
How large must the annual payments at t = 5, 6, and 7 be to cover
Ellen\'s anticipated college costs?
a. $1,965.21
b. $2,068.64
c. $2,177.51
d. $2,292.12
e. $2,412.76
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FIN 534 Week 3 Chapter 5 Solution