a. Suppose Mike wants to prepare an amount of money today to support his son's college education. He expects his son to enter a college in 16 years with annual tuition and expenses of $25,000 for 4 years. His first college tuition and expenses will be due in exactly 16 years from now. Mike decides to put all the money that is required for his son's college education today at a bank account earning rate of return of 8 percent per year, compounded annually. How much money must Mike set aside today?

b. Suppose that, instead of preparing a lump sum today, Mike will deposit a fixed amount of money every year for the next 12 years in the same bank account. The first deposit will start at the end of this year. How much amount must he deposit per year?

 

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