Joseph and Margaret recently had their first child. They're excited about building their family together. Margaret...
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Joseph and Margaret recently had their first child. They're excited about building their family together. Margaret wants to begin a college savings fund for their child immediately, whereas Joseph wants to wait a few years (he'd like to use extra cash flow to buy a new minivan and some household items instead). Margaret has identified a college savings plan that provides a relatively high rate of return for those who start saving early. The plan is set up so that over time the allocation of stocks in the plan falls as the child gets closer to college age and the allocation to bonds is increased. This means that the expected rate of return also falls over time. The rate of return figures Margaret obtained from the savings plan are as follows. Child's Age 1 2 3 4 5 6 7 8 9 10. 11 12 13 14 15 16 17 18 Stock Allocation 100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 10% Fixed Income Allocation 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 90% Expected Return 9.60% 9.00% 8.50% 8.20% 7.60% 7.00% 6.60% 6.10% 5.80% 5.10% 4.70% 4,20% 3.80% 3.30% 3.00% 2.50% 2.00% 1.10% (a) If Margaret can convince Joseph to begin saving $3,400 per year for the next 18 years, how much will they have in the college savings plan when their child enters college? (Round answer to 2 decimal places, e.g. 52.25.) If they begin saving immediately, they will accumulate $ Joseph and Margaret recently had their first child. They're excited about building their family together. Margaret wants to begin a college savings fund for their child immediately, whereas Joseph wants to wait a few years (he'd like to use extra cash flow to buy a new minivan and some household items instead). Margaret has identified a college savings plan that provides a relatively high rate of return for those who start saving early. The plan is set up so that over time the allocation of stocks in the plan falls as the child gets closer to college age and the allocation to bonds is increased. This means that the expected rate of return also falls over time. The rate of return figures Margaret obtained from the savings plan are as follows. Child's Age 1 2 3 4 5 6 7 8 9 10. 11 12 13 14 15 16 17 18 Stock Allocation 100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 10% Fixed Income Allocation 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 90% Expected Return 9.60% 9.00% 8.50% 8.20% 7.60% 7.00% 6.60% 6.10% 5.80% 5.10% 4.70% 4,20% 3.80% 3.30% 3.00% 2.50% 2.00% 1.10% (a) If Margaret can convince Joseph to begin saving $3,400 per year for the next 18 years, how much will they have in the college savings plan when their child enters college? (Round answer to 2 decimal places, e.g. 52.25.) If they begin saving immediately, they will accumulate $
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Personal Finance Turning Money into Wealth
ISBN: 978-0134730363
8th edition
Authors: Arthur J. Keown
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