You plan to establish a college education fund for your child. The current cost

Question

You plan to establish a college education fund for your child. The current cost of college is $12,000 per year and you expect this to increase by 5% per year. You plan to deposit money into an account earning 10% per year at the end of each of the next 18 years. You will withdraw the amount required for college at the end of years 18-22. You want the deposit to be low initially and grow by the rate of your salary increase, which you estimate to be 3.5%. What will be the first deposit?How much will be in the account after 8 years?

Explanation / Answer

The future value is after 18 years is FV(5%,18,12000,,0)=$337,588.62

and the deposit which needs to be made at 3.5% PMT(3.5%,18,,337588.61,0)=$13,779.3

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