Joe wants to start a savings plan to pay for his children's anticipated college educations. Based...
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Joe wants to start a savings plan to pay for his children's anticipated college educations. Based on current forecasts, Joe's expenditures on his elder daughter's college education will be $42000 per year, with cash flows occurring 19, 20, 21, and 22 years from now. Based on current forecasts, Joe's expenditures on his younger daughter's college education will be $48000 per year, with cash flows occurring 21, 22, 23, and 24 years from now. Joe plans to make 18 annual, end- of-year deposits into a college-savings account with the first deposit occurring one year from now. Use a rate of 7.00%/year in all of your time-value-of-money math. Strategy to solve. Step 1: Value the first delayed annuity at time 0. Step 2: Value the second delayed annuity at time 0. Step 3: Add the two present values together to get the total value of the college spending at time 0 (t=0). Step 4 (the final step): Determine the cash flow in Joe's 18-cash-flow savings annuity. Joe wants to start a savings plan to pay for his children's anticipated college educations. Based on current forecasts, Joe's expenditures on his elder daughter's college education will be $42000 per year, with cash flows occurring 19, 20, 21, and 22 years from now. Based on current forecasts, Joe's expenditures on his younger daughter's college education will be $48000 per year, with cash flows occurring 21, 22, 23, and 24 years from now. Joe plans to make 18 annual, end- of-year deposits into a college-savings account with the first deposit occurring one year from now. Use a rate of 7.00%/year in all of your time-value-of-money math. Strategy to solve. Step 1: Value the first delayed annuity at time 0. Step 2: Value the second delayed annuity at time 0. Step 3: Add the two present values together to get the total value of the college spending at time 0 (t=0). Step 4 (the final step): Determine the cash flow in Joe's 18-cash-flow savings annuity.
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To solve this problem we need to calculate the present value of two delayed annuities one for each d... View the full answer
Related Book For
Taxation Of Individuals And Business Entities 2015
ISBN: 9780077862367
6th Edition
Authors: Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver
Posted Date:
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