A family wishes to provide for their child’s college education. Being a bit risk averse, they plan to invest in stable yet unspectacular opportunities yielding a 6 percent return. Their best guess at inflation is 4 percent for the foreseeable future. They plan to make investments on the child’s birthday (U.S. style dictates first birthday is 1 year after date of birth), every year from age 1 through 18. They envision their child needing $100,000 at the beginning of the first year of college, with inflated amounts to follow for 3 more years. The first $100,000 will be needed right at the end of the eighteenth birthday’s investment—right at the beginning of the nineteenth year.

a. What equal amount of money must they invest at the end of each year?

b. If the parents decide that their earning power will increase, and each year they will invest 10 percent more, how much must they invest in the first year?

c. If a grandparent offers to put up the entire sum of money needed, on the date of the child’s birth, what sum must they put up?