Aaron wants to fund his 3-year-old son Isaac’s college education. The current co
ID: 2656822 • Letter: A
Question
Aaron wants to fund his 3-year-old son Isaac’s college education. The current cost of tuition is $20,000 per year and he expects it to increase 9% per year. He also anticipates earning 8% per year on his investments. Approximately how much does Aaron need to contribute today to fund half of four years of college for Isaac?
$43,000
B.$47,000
C$51,000
D.$54,000
Alex and Trinity want to fund their 3-year-old daughter Kim’s college education. The current cost of tuition is $10,000 per year and they expect it to increase 7% per year. They also anticipate earning 8% per year on their investments. Approximately how much do they need to contribute today to fund four years of college for Kim?
$33,000
$34,000
$35,000
D.$36,000
Which of the following statements concerning Coverdell Education Savings Accounts is (are) correct?
I Contributions to the account are tax deductible.
II Contributions are limited to $2,000 per student in 2017
III Funds can be spent income tax free for K-12th grade tuition
IV Funds can be spent income tax free for college tuition
A. I and III only
II and IV only
I, II, and IV only
D. II, III, and IV only
Kyle and Brooke want to fund their 4-year-old daughter Amanda’s college education. The current cost of tuition is $15,000 per year and they expect it to increase 8% per year. They also anticipate earning 5% per year on their investments. Approximately how much do they need to contribute today to fund four years of college for Amanda?
A.$39,000
B. $54,000
C. $78,000
D.$93,000
4.
Jordan purchased Series EE bonds to help pay for his child’s education. In order to receive tax free treatment on the interest income, when does Jordan’s AGI need to be below the phase out threshold?
A. At the time the bond was purchased
B. At the time the bond is used to pay for college
C. At the time the bond was purchased and at the time the bond is used to pay for college
D. There are no AGI thresholds for tax free treatment of Series EE bond interest used for college
A.$43,000
B.$47,000
C$51,000
D.$54,000
Alex and Trinity want to fund their 3-year-old daughter Kim’s college education. The current cost of tuition is $10,000 per year and they expect it to increase 7% per year. They also anticipate earning 8% per year on their investments. Approximately how much do they need to contribute today to fund four years of college for Kim?
A.
$33,000
B.$34,000
C.$35,000
D.$36,000
Which of the following statements concerning Coverdell Education Savings Accounts is (are) correct?
I Contributions to the account are tax deductible.
II Contributions are limited to $2,000 per student in 2017
III Funds can be spent income tax free for K-12th grade tuition
IV Funds can be spent income tax free for college tuition
A. I and III only
B.II and IV only
C.I, II, and IV only
D. II, III, and IV only
Kyle and Brooke want to fund their 4-year-old daughter Amanda’s college education. The current cost of tuition is $15,000 per year and they expect it to increase 8% per year. They also anticipate earning 5% per year on their investments. Approximately how much do they need to contribute today to fund four years of college for Amanda?
A.$39,000
B. $54,000
C. $78,000
D.$93,000
4.
Jordan purchased Series EE bonds to help pay for his child’s education. In order to receive tax free treatment on the interest income, when does Jordan’s AGI need to be below the phase out threshold?
A. At the time the bond was purchased
B. At the time the bond is used to pay for college
C. At the time the bond was purchased and at the time the bond is used to pay for college
D. There are no AGI thresholds for tax free treatment of Series EE bond interest used for college
Explanation / Answer
Considering, a kid joins college at the age of 16,
1st Answer: (B) $47000
Explanation
Isaac's age = 3 years
So time difference between his age and time to join college = 16-3 =13 years
Future Value of tution fee:
13th year = $20000 x (1.09)^13 = $61316.09
14th year = $20000 x (1.09)^14 = $66834.5
Total of 13th and 14th = $128150.59
Therefore the amount to be invested by Aarone today = $128150.59/(1.08^13) = $47114.18 =$47000 (approximately)
For 2nd and 4th question, we should consider all the four years of college and the explanation is similar to the 1st answer
2nd Answer: (D) $36000
4th Answer: (D) $93000
3rd Answer: (D) II, III and IV only.
Explanation
Coverdell Education Savings Accounts are tax saving funds and these funds can be spent income tax free for any kind of education with contributions are limited to $2,000 per student.
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