Question

John Hedrick wants to pay one-half of the college costs for his daughter Ruth. She will be attending a private college with annual costs of $20,000 today. Ruth is 10 years old and will be starting college in 8 years. If these costs are expected to increase annually by 8%, how much will Mr. Hedrick need to provide for her first year of college

Answer 1

Answer:

Half payment in the first year  =$ 18,509.30

Explanation:

We need to note that as at today, Ruth is already 10 years old.The amount required for her college education in the first year will be due in 8 years. And this can be determined by inflating the annual cost of $20,000 by 8% yearly for 8 years.

This is done using the formula below:

Inflated amount = A × (1+r)^n

r = 8% , n - 8, A- 20,000

Inflated amount = 20,000× (1.08)^8

                          = 37,018.60

The college cost for first year = $37,018.60

John Hedrick wishes to pay half =

                                  =$37,018.60/2

Half payment in the first year  =$ 18,509.30