2. 2.9 3. 2.10 You would like to save money to send your child to college (Unive

Question

2. 2.9 3. 2.10 You would like to save money to send your child to college (University of Idaho, Chemical Engineering program, of course). Let us say you start saving immediately after the birth of your child, making equal monthly contributions to an investment plan (the first contribution occurring exactly one month after the birth). You continue contributions until your child leaves for college on the 18th birthday. The nominal annual return on investment (Annual Percentage Rate or APR) is 10%. Write a script to determine the monthly contribution you need to make in order to have sufficient funds to pay for college expenses for all 4 years at the time your child leaves for college. Make any assumption necessary to estimate college expenses in future. (Note that APR is a simple interest rate, that is, does not include compounding). 4. tory Due Date: September 6, 2018 2018 10:38 2 Ln 1 Ready 8 R2018a - clas... 99+ ype here to search

Explanation / Answer

Average fees for US Universities for a 4 year private non-profit colleges:-

Tuition fees - $40000

Room and Board - $20000

Other Expenses - $10000

Total - $70000 (This is as per today's terms)

If we consider it for future i.e. after 18 years, this fees might increase $150000

Now as per the question, we start saving from day one of is birth till his 18th birthday, means we are investing for 18 years i.e. 216 months.

So, to get total $150000 on his 18th birthday, we need to make atlease monthly contribution of,

150000/216 = $695

However, we will get interest of 10% for our investment per annum for our investment i.e. 0.83% per month.

So, considering the same we will need to make an investment of,

Using simple interest, if we want to receive $150000 in future after 18 years,

S = PRT/100

Suppose P = 83,000, we get

= 83000*18*10/100

= 149,400 (incl interest and principle)

So, approx we need to invest $83000 per annum to get $150000 after 18 years.

so, monthly investment = 83000/216

= $384.26

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