Susan will start attending college in September 2024 at which time she will need
ID: 2649672 • Letter: S
Question
Susan will start attending college in September 2024 at which time she will need $12,000 for the first year of study. Her costs at college for the next three years are estimated at $14,000, $16,000, and $18,000, respectively. Susans father plans to make equal payments to a money market fund that yields 6%, the first payment will be in September 2014 and the last in September 2024. (a) What is the size of the annual payments the father must make if the fund is to supply Susan with the above estimates? (b) Suppose the father has just inherited a large sum of money. What amount would he have to deposit if he decides to make one lump-sum payment in September 2014.
Explanation / Answer
No of Years = 10 yrs
Interest rate = 6%
Amount required after 10 yrs = $60,000
60000 = x(1.06)+---------+x(1.06)^n
Therefore, the annual deposit is $ 4,294.13
Therefore, lump-sum amount to deposit = $33,519.55
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