kids ages are 6 and 8. please show all work on excel First things first. The Bro
ID: 2741699 • Letter: K
Question
kids ages are 6 and 8. please show all work on excel
First things first. The Brown family wants to figure out how they will pay for their children's college education. They have not saved any money to send any of the children to college. Both children are academically talented students with excellent grades. They hope that each child would qualify for financial aid. They also want to make sure that their children can attend college even if they do not get any financial aid. Therefore, they are on a mission to find ways to pay for each for each of their children to attend 4 years of college at State University, beginning at age 18. They are willing to make changes to their finances to pay for kids' college education, but also need your help determining how much they should save and whether they should invest the money until the kids are ready to attend college. If attending four years of college costs $15, 000 per year in today's dollar and the educational expenses is expected to increase by 2.5% annually, how much money do the Brown's family need to put in the educational fund (in today's dollar) to meet their children's educational cost assuming that the interest rate in the market is 5%? How much should they save each month assuming 5% interest rate on their savings account if they want to have enough money to pay for both children college education when their oldest child will begin college in 11 years? The Brown family wonders how much additional money they would accumulate if they could earn 6% a year on the savings account instead of 5%.Explanation / Answer
The elder kid is 8 years old now and will start college at 18 years. i.e. after 10 years and will complete in 4 years i.e. in 14 years from now. The younger kid is 6 years old now and will start college at 18 years. i.e. after 12 years and will complete in 4 years i.e. in 16 years from now.
Present Annual cost of education = $15,000
Market interest rate = 5% = 0.05
Annual increase in cost = 2.5% = 0.025
Cost of education after 10 years = 15,000 * (1.025)10 = 19,201.27
Present Value at market interest rate = 19,201.27 / (1.05)10 = 11,787.91
Cost of education after 11 years = 15,000 * (1.025)11 = 19,681.30
Present Value at market interest rate = 19,681.30 / (1.05)11 = 11,507.25
Cost of education after 12 years = 15,000 * (1.025)12 = 20,173.33
For two children = 20,173.33 * 2 = 40,346.66
Present Value at market interest rate = 40,346.66 / (1.05)12 = 22,466.53
Cost of education after 13 years = 15,000 * (1.025)13 = 20,677.67
For two children = 20,677.67 * 2 = 41,355.34
Present Value at market interest rate = 41,355.34 / (1.05)13 = 21,931.62
Cost of education after 14 years = 15,000 * (1.025)14 = 21,194.61
Present Value at market interest rate = 21,194.61 / (1.05)14 = 10,704.72
Cost of education after 15 years = 15,000 * (1.025)15 = 21,724.47
Present Value at market interest rate = 21,724.47 / (1.05)15 = 10,449.84
Amount required to be put in the educational fund in today's dollar to meet the education cost at market interest rate = $ (11,787.91 + 11,507.25 + 22,466.53 + 21,931.62 + 10,704.72 + 10,449.84) = $ 88,847.87
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