alculate college funding needs for Caridad (age 14) using this guide: Tuition, c

Question

alculate college funding needs for Caridad (age 14) using this guide:

Tuition, currently at $16,000 per year, is expected to increase 5% a per year and that they can earn about 7% return on their investments.

Number of years until student begins college: 4

Calculate:

Cash Outflows future:
number years child will attend college: 4
Inflation rate:
Education investment rate:
Real rate (Inflation adjusted yield):

Lump sum outflow future (when college began):

Number of periods until student begins college (years):
Education Investment rate:
Assets required future (when college begins):

Required annual savings:

Explanation / Answer

solution for Year 2 = $16000*1.05 = $16800 for Year 3 = $16800*1.05 = $17640 for year 4 = $18522 number years child will attend college: 4 Inflation rate: 5% Education investment rate: 7% Real rate (Inflation adjusted yield): = 1.07/1.05 -1 = 1.9% Lump sum outflow future (when college began): $16000 Number of periods until student begins college (years): 4 Education Investment rate: 7% Assets required future (when college begins) = NPV = $46227.86 Required annual savings: $13647.76

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