Zelda wants to save $5,000,000 by the time she is 65. She turned 25 years old ye

Question

Zelda wants to save $5,000,000 by the time she is 65. She turned 25 years old yesterday. She has twin daughters that are two years old today. She wants to pay each daughter $40,000 per year for five years for anticipated college expenses. The first payment will begin when her daughter turns 18. She also has $10,000 saved and she plans to invest it at 8% annual interest until she turns 65. Additionally, she anticipates selling a property she owns tens years form today for an after tax profit of $100,000, which she will then invest until she turns 65 at 8% per year. How much money does she need to save each year starting today if she earns 8% on her investments annually to reach her goal? How much each month starting today? Suppose she did not fund her daughter's education. What would your answer now be?

Explanation / Answer

Lets assume that during 5 yrs of college Fee, Zelda will continue to earn 8% on his investment. As Payment starts at Y18, we have Type =1 ie immeidate. PMT = Annual ayment for one daughter = $40000, Term = nper = 5 yrs, Rate =8% So for 5 Yrs, PV at Y18 is = PV(Rate,nper,PMT,type) = PV(8%,5,-40000,1) = $172,485 So for Twins, this amount will be at Y18 = 2* $172,485 = $344,970 So This Y18 is 16 Yrs away as Twins are 2 Yr old Today. So we have Rate =8%, FV= $344,970 , Period = nper = 16 Annual COntribution = PMT(Rate,nper,PV,FV) = PMT(8%,16,0,344970) = $(11,376) So Zelda has to save $11,376 every year for 16 Yrs to be able to gve his Twins $40k each for five yrs when they turn 18.

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