Question 1(20 marks) Today is your son\'s 10th birthday (Jan 1). You are plannin

Question

Question 1(20 marks) Today is your son's 10th birthday (Jan 1). You are planning for your son's 3-year college education that is expected to start when he reaches the age of 17. The expected cost for each year will be $60,000, payable at the beginning of each of the three years of studies. To meet the expected payments, you will make fixed year-end deposits in an investment account that pays 6 percent of interest, compounded annually. The first deposit will be made at the end of this year while the last one at your son's 17th birthday (i.e., when he turns 17). Required (a) From today's perspective, determine the series of deposits are an ordinary annuity or annuity due with brief explanation within 40 words. (b) Compute the amount you need to have in the investment account when your son reaches the age of 17 in order to meet the three mentioned annual payments. (c) Compute the amount you need to deposit every year in order to have sufficient balance at the investment account to pay for your son's education in part (b).

Explanation / Answer

(a) The annuity deposits are $ 20,253.38

(b) Investment amount required =

(c) Computation of the installment

$170,003.56

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