Question

Congratulations (assume you just had a baby)! You expect your baby to start college 18 years from today. What college would you like for your baby to attend? Approximately, how much will the four years of tuition, room, and board cost you for your baby to attend this school? How much will you need to save every year (starting today) for you to have this amount in 18 years? Please state your assumed discount rate. You must apply the time value of money concept to solve this problem. Show work (20 points).

Answer 1

Answer:

$974.969721935.

Explanation:

So, the assumed discount rate is six(6) percent(%). That is r = 0.06, hence, the amount I will be needing in the next 18 years for my child = $31,940. So, let us Calculate my yearly savings starting today by using the mathematical formula or representation below;

Amount needed in 18 years = (amounts to be saved starting from today, x)/ r × [ ( 1 + r )^n - 1] × ( 1 + r).

$31,940 = x/ 0.06 × (1 + 0.06)^18 - 1 × ( 1 + 0.06).

Solving for x, we find that;

The amounts to be saved starting from today, x = $31,940/ 32.7599917017.

=> The amounts to be saved starting from today, x =$974.969721935.