In ten years from now and you have a newborn child. You start saving for your childs
Question:
In ten years from now and you have a newborn child. You start saving for your child’s education. When your child starts University when they are 18, fees will be $50,000 per year. Although the cost for the first year is expected to $50,000, that cost will increase due to inflation rate of 4% per year. The first tuition payment will be made in 28 years from today or 18 years from the day your child is born. You expect them to get a Master’s degree, thus they will be in University for 7 years and you will need to make 7 annual tuition payments. To pay for this education, you plan on making 18 equal annual deposits into a savings account. Your first deposit will be 1 year after your child is born, and the last deposit will be on the day that they start University, on their 18th birthday. The day of your last savings deposit will also be the day that the first tuition payment is due. If the discount rate is 9.76% (semi-annual compounding), how much must your first deposit be in order to pay for your child’s university education?
Introduction to Corporate Finance What Companies Do
ISBN: 978-1111222284
3rd edition
Authors: John Graham, Scott Smart