What are the solutions to this problem? thanks! A college tuition saving plan al

Question

What are the solutions to this problem? thanks!

A college tuition saving plan allows parents to save money tor college education of their children. Parents must deposit a fixed amount of money semiannually. (i.e every 6 months) in this plan, starling at the first 6-month of their child and endine at fits hci eighteenth birthday. This saving plan provides 9% per year interest rate, compounded monthly, Money from this plan must be withdrawn on the child's eighteenth birthday What are PP and CP for this sav ing plan? W hat is the effective interest rate for PP?What is the number of periods (n) in this cash flow? If parents deposit $1,000 semiannually in this saving plan for their child how much money for college education will the plan provide on their child's eighteenth birthday? If parents want to have $100,000 for college education on their child's eighteenth birthday, how much money should they deposit semiannually in this saving plan?

Explanation / Answer

9.00 yearly is 9/12 0.75 monthly.

So the rate for six months is (1.0075)^6-1= 4.5852235% .

We have 18*2 =36 periods since the deposits are semiannually.

Put all this into a financial calculator with a 1,000 semiannual payment and you get 87,730.46.

Recomputing with 100,000 as the future value you get 1139.86 as a semiannual payment.

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