ou buy 1,000 shares o You have an absolutely brilliant child who is six years ol

Question

ou buy 1,000 shares o

You have an absolutely brilliant child who is six years old and will be attending a private college in twelve years. You know that in twelve years a four-year college will cost at least $70,000 per year (total $280,000), including tuition, books, and room and board. If you can earn 12 percent on a mutual fund investment during the next twelve years, how much will you have to invest at the beginning of each year to have enough to send your child to college for four years?

Explanation / Answer

first we need to find present value of 70,000 which ahs to be paid for 4 years as tution fee

=70,000/(1+12%)^1+70,000/(1+12%)^2+70,000/(1+12%)^3+70,000/(1+12%)^4

=$250,000

Now find per year value of tne above amout as future value for 12 years at 12% rate

=PMT(12%,12,,250000,0)

=$10,359.2

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