Answer:
Instructions are listed below.
Explanation:
Giving the following information:
Joann wants to save for her daughter's education. Tuition costs $10,000 per year in today's dollars. Her daughter was born today and will go to school starting at age 18. She will go to school for 4 years. She can earn 11% on her investments and tuition inflation is 6%.
First, we must find the cost of the tuition for 18 years and so on from now.
FV= PV*(1+i)^n
FV= 10,000*(1.06)^18= 28,543.39
Year 2= 28,543.39*1.06= 30,256
Year 3= 30,256*1.06= 32,071.36
Year 4= 32,071.36= 33,995.64
Total= 124,866.39
Now, we can calculate the annual deposit:
FV= {A*[(1+i)^n-1]}/i
A= annual deposit
Isolating A:
A= (FV*i)/{[(1+i)^n]-1}
A= (124,966.39*0.11)/[(1.11^18)-1]= $2,479.69
