Your younger sister , Jennifer, will start collegein fiveyears. She has just inf

Question

Your younger sister , Jennifer, will start collegein fiveyears. She has just informed your parents that she wants to go toEaster State University., which will cost $18,000 per year for fouryears (cost assumed to come at the end of each year). AnticipatingJennifer's ambitions, your parents started investing $3,000 peryear five years ago and will continue to do so for five moreyears.      How much more will your parents haveto each year for the next five years to have the necessary fundsfor jennifer's education? Use 10 percent as the appropriateinterast rate throughout the problem (for discounting orcompounding). Round all values to whole numbers. Your younger sister , Jennifer, will start collegein fiveyears. She has just informed your parents that she wants to go toEaster State University., which will cost $18,000 per year for fouryears (cost assumed to come at the end of each year). AnticipatingJennifer's ambitions, your parents started investing $3,000 peryear five years ago and will continue to do so for five moreyears.      How much more will your parents haveto each year for the next five years to have the necessary fundsfor jennifer's education? Use 10 percent as the appropriateinterast rate throughout the problem (for discounting orcompounding). Round all values to whole numbers.

Explanation / Answer

Jennifer needs $ 18,000 / yr for 4 yrs (every year)at 10% Looking in to present value table for a given no. of periods - 10%4 yrs is 3.170, So 18,000 x 3.170 = $ 57,060.00 is the cost of her tuition. Investment value of $ 3,000 / yr made 5 yrs ago = 3,000 *6.105                                                                                      = 18,315.00 This 18,315 will earn 10% for the next 5 yrs ,So the value of18,315 earned up to date after 5 yrs will be                                                    18,315 * 1.611 = $ 29,505 Investment $ 3,000/yr for 5 yrs        3,000 * 6.105 =$ 18,315 Total amt parents will have when she startscollege     47,820 They still need ( 57,060- 47,820 = $ 9,240) Future value table paid in each period 10% , 5 periods is6.105 = 9,240 / 6.105 = 1,514.00 So, parents needed total 3,000 + 1,514 = 4,514 annual payment tomeet her college needs. Hope this may help you !

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