Kelly will start attending college in September 2024 at which time she will need

Question

Kelly will start attending college in September 2024 at which time she will need $18,000 for the first year of study. Her costs at college for the next three years are estimated at $20,000, $22 ,000, and $24,000, respectively. Kelly ’s father plans to make equal payments to a money market fund that yields 6 %, the first payment will be in September 2016 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 Kelly 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 2016

Explanation / Answer

2024 2025 2026 2027 18000 20000 22000 24000 present value 1 year back 58598.71 42114.63 22641.51 need this 76598.71 62114.63 44641.51 24000 emi x(1.06)^10 + x = 76598.71 2.790848x = 76598.71 2.790848 emi 27446.4 for 1 lumpsum 76598.71/1.10^10 29532.11862

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