Your parents have accumulated a $130,000 nest egg. They have been planning to us
ID: 2628387 • Letter: Y
Question
Your parents have accumulated a $130,000 nest egg. They have been planning to use this money to pay college costs to be incurred by you and your sister, Courtney. However, Courtney has decided to forgo college and start a nail salon. Your parents are giving Courtney $22,000 to help her get started, and they have decided to take year-end vacations costing $9,000 per year for the next four years. Use 6 percent as the appropriate interest rate throughout this problem. Use Appendix A and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.
a.
How much money will your parents have at the end of four years to help you with graduate school, which you will start then?
b.
You plan to work on a master
a.
How much money will your parents have at the end of four years to help you with graduate school, which you will start then?
Explanation / Answer
a)
amount available at begining = 130000-22000 = 108000
amount availabe after year1 end = 108000 * 1.06 = 114480
amount available after year 2 begining = 114480 -9000 = 105480
amount availabe after year2 end = 105480 * 1.06 = 111808.80
amount available after year 3 begining = 111808.80 -9000 = 102808.80
amount availabe after year3 end = 102808.80 * 1.06 = 108977.33
amount available after year 4 begining = 108977.33 -9000 = 99977.33
amount availabe after year4 end = 99977.33 * 1.06 = 105975.97
amount available after year 5 begining = 105975.97 -9000 = 96975.97
money parents have at the end of four years = 96975.97...........ans
b)
amount at the begining = 96975.97 - 24580 = 72395.97
amount at the beginig of next year = (72395.97 * 1.06) - 24580 = 52159.73
amount at the begining of next year = (52159.73 * 1.06) - 24580 = 30709.31
amount at the beginig of next year = (30709.31 * 1.06 ) - 24580 = 7971.87
hence
he will be able to stay for a period of four years in school
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