Question

4. An engineering couple is planning to finance the projected college expenses of their two children. The children are currently aged 1 and 4, respectively. They estimate total college expenses foreach child to be $60000 per year and they assume college wil be four years for each child. At the birth of each child the Grandparents invested $5000 in a fund growing at 8% per year with a ten year life. The parents plan to make quarterly deposits to a fund growing at 6% per year-quarterly, beginning now and continuing through the children's education. What deposit will be required? After two years of college the youngest child receives a full scholarship for the remaining years. Can the couple stop depositing? And can they go to Venice and freely spend $10000?

* THEY CAN GO TO COLLEGE AT 18 YRS OLD.

Answer 1

Answer to Question 1

The evaluation is actually based on the expenses which their parents need to bear amounted to $60000 per year. Now, the deposit which is needed to be made to overcome the yearly expense is shown below:

• $60000 = D * (1 + 6/100) / 4
• $60000 = D * (106 / 100) / 4
• D = (56604 / 4)
• D = $14150.

Hence, the deposit amount termed as (D) based on the above evaluation must be $14150 quarterly.

Answer to Question 2

After two years when the youngest child will start to receive scholarship for the remaining years then the parents will be able to save half of the quarterly deposits each year.

Then in a particular year, they will be able to save:

= (14150 / 2) * 4

= $28300.

Hence from the above evaluation they will be able to save $28300 each year. This clearly states that after 2 years they will be able to spend $ 10000 for the purpose to visit Venice.