Answer:
Holly saved $3,362.76 at the end of each year.
Explanation:
Solution
Given that:
We solve for the computation of Tuition Fees given as:
First Year tuition fees will be $13,000 with inflation at 7% for 18 years.
That is, $13,000 * (1.07)^18 = $13,000 * 3.38 = $43,940
Now,
For the remaining three years we have the following given below:
College Year 1= $43,940
College Year 2 = $47,015.80, $43,940 * 1.07
College Year 3 = $50,306.91, $47,015.80 * 1.07
College Year 4 = $53,828.39, $50,306.91 * 1.07
Thus,
The Present Value of the college fees at the beginning of college at 10% is given as follows:
Year PVF at 10% College Fees Present Value
1 0.91 $43,940.00 $39,985.40
2 0.83 $47,015.80 $39,023.11
3 0.75 $50,306.91 $37,730.18
4 0.68 $53,828.39 $36,603.31
TOTAL : $153,342.00
Thus,
Holly should have accumulated $153,342 till beginning of her daughter's college.
Let us recall the accumulation factor for annual annuity is given as:
(1 + .10)^18 - 1/. 10
=45.60
Therefore, the Annual Investment should be $153,342 / 45.60
= $3,362.76
