Question

8) Assuming that college costs continue to increase an average of 4% per year and that all her collegesavings are invested in an account paying 7% interest, then the amount of money she will need tohave available at age 18 to pay for all four years of her undergraduate education is closest to

Answer 1

Answer:

The amount in her savings account at the age of 18 years should be $97107.29

Explanation:

As the complete question is not given, by finding a similar question is found online and it is enclosed herewith.

From the data the current per year cost of college is given as

PV=$12500

Rate of Growth=i=4%

The cost of college when the baby is 18 years is given as

$FV=PV*(1+i)^n\\FV=12500*(1+0.04)^{18}\\FV=\ 25322.71$

Using the present value of growing annuity find the four years college fee

$Total Money=(\frac{C}{r-g})*(1-(\frac{1+g}{1+r})^n)*(1+r)$

Here

• C is calculated above as $25322.71
• R is the interest rate which is given as 7%
• G is the growth rate which is given as 4%
• n is the number of years which is 4 years

$Total Money=(\frac{25322}{0.07-0.04})*(1-(\frac{1+0.04}{1+0.07})^4)*(1+0.07)\\Total Money=\ 97107.29$

So the amount in her savings account at the age of 18 years should be $97107.29