The Woodsons want to set aside $100,000 for each of their two children by the time each
Question:
The Woodson’s want to set aside $100,000 for each of their two children by the time each one starts college. They have 6 years remaining for 1 child and 8 years for the other. They started the college fund several years ago and the fund earns 7% per year and has a current balance of $75,000. How much do they need to contribute to the fund each year in total to meet their goals if they can increase their savings contributions by 3% every year. Assume that the annual contributions occur at the end of the year. For simplicity assume that they will withdraw the entire $100,000 for Child 1 at the end of year 6 and the entire $100,000 for Child 2 at the end of year 8.
Hint:
Use Excel to find the starting contribution that achieves the goal and leaves the investment fund at zero after the $100,000 withdrawal for Child 2. Afterwards, all other contributions will simply increase by 3% every year.
Personal Financial Planning
ISBN: 978-1305636613
14th edition
Authors: Randy Billingsley, Lawrence J. Gitman, Michael D. Joehnk