Question

b. Assuming that college costs continue to increase at 4% per year and that all her college savings are invested in an account paying 7% interest, what would be the amount of money that she will need to have available at age 18 to pay for all four years of her undergraduate education? (1.5 pt)

Answer 1

savings is $97107.29

Step-by-step explanation:

given data

college costs increase = 4% per year

invested paying r = 7%

available age g = 18

solution

we consider here Current Fees per year = $12500

we get here future value for 18 year that is

future value = 12500 ×
`(1+0.04)^(18)` ...............1

future value FV = $25322.71

and

present value of growing annuity find the four years college fee

so here

Total Money =
`((FV)/(r-g))* (1-((1+g)/(1+r))^t)* (1+r)` ................2

so put here value

Total Money =
`((25322)/(0.07-0.04))* (1-((1+0.04)/(1+0.07))^4)* (1+0.07)`

Total Money = 97107.288177

so that savings is $97107.29