Question

8. Your younger sister, Jennifer, will start college in five years. She has just informed your parents that she wants to go to Eastern State U., which will cost $20,000 per year for four years (cost assumed to come at the end of each year). Anticipating Jennifer's ambitions, your parents started investing $3,000 per year five years ago and will continue to do so for five more years. How much more will your parents have to invest each year for the next five years to have the necessary fund for Jennifer's education? Use 10% as the appropriate interest rate throughout this problem.

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

А В C D 1 Annual Fee of College College term (years) Interest rate Value of College fee on beginning of college $20,000.00 2 4 4 10% $63,397.31 6 Annual saving No. of Annual saving Current value of last 5 savings $3,000.00 7 5 $18,315.30 10 Required Annual saving for next 5 year $5,552.79 11 12 $2,552.79 Additional Saving each year for next 5 year 13 14 15 LC LC

Cell reference -

А В C 1 Annual Fee of College College term (years) Interest rate 20000 2 4 0.1 4 Value of College fee on beginning of college =PV(C4,C3,-C2,,0) 6 Annual saving No. of Annual saving 7 3000 8 = FV(C4,C8,-C7,,0) Current value of last 5 savings 9 10 Required Annual saving for next 5 year ЕРМТ(С4,5, С9,-C5,0) 11 12 C11-C7 Additional Saving each year for next 5 year 13 14 15 LC

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.