Question

Your parents have accumulated a $120,000 nest egg. They have been planning to use this money to pay college costs to be incurred by you and your sister, Courtney. However, Courtney has decided to forgo college and start a nail salon. Your parents are giving Courtney $33,000 to help her get started, and they have decided to take year-end vacations costing $10,000 per year for the next four years. Use 7 percent as the appropriate interest rate throughout this problem. Use Appendix A and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.
a. How much money will your parents have at the end of four years to help you with graduate school, which you will start then?
b. You plan to work on a master’s and perhaps a PhD. If graduate school costs $24,060 per year, approximately how long will you be able to stay in school based on these funds? (Round your final answer to 2 decimal places.)

Answer 1

Answer and Explanation:

The computation is shown below:

a. For computing the number of money required at the end of four years first we need to find out the present value i.e to be shown in the attachment

Given that,  

Future value = $0

Rate of interest = 7%

NPER = 4 years

PMT = $10,000

The formula is shown below:

= PV(Rate;NPER;PMT;FV;type)

So, after applying this, the present value is $33,872.11

Now the net nest egg is

= $120,000 - $33,000 - $33,872.11

= $53,127.89

Now the future value is

= Present value × (1 + interest rate)^number of years

= $53,127.89 × (1 + 0.07)^4

= $69,639.83

b. Now to find out the number of years required to stay in school we need to use the NPER formula i.e be to shown in the attachment

Given that,  

Present value = $69,639.83

Future value = $0

Rate of interest = 7%

PMT = $24,060

The formula is shown below:

= NPER(Rate;PMT;-PV;FV;type)

The present value come in negative

So, after applying this, the answer would be 3.35 years