You are saving for the college education of your two children. They are two year

Question

You are saving for the college education of your two children. They are two years apart in age; one will begin college 16 years from today and the other will begin 18 years from today. You estimate your children’s college expenses to be $42,000 per year per child, payable at the beginning of each school year. The annual interest rate is 7.6 percent. Your deposits begin one year from today. You will make your last deposit when your oldest child enters college. Assume your children will be on the four-year plan. How much money must you deposit in an account each year to fund your children’s education? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

all cash flows are taken to T=18(2nd child enters college)

college fee =!st child(42000*1.0762 +42000*1.076 + 42000 +42000/1.076) +2nd child college payments discounted

college fee =325876.1241

therefore

X(1.07617-1)/0.076=325876.1241

X=$10011.43

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