Question

Suppose that a young couple has just had their first baby and they wish to insure that enough money will be available to pay for their child's college education. They decide to make deposits into an educational savings account on each of the d a y, ang with her first birthday. Assume that the educational savings account will run a constant 9%. The parents deposit $2.000 on their daughter's first bethday and plan to increase the size of their deposits by 5% each year. Assuming that the parents have already made the deposit for her daughter's 18th birthday, then the amount valable for the daughter's College expenses on her 18 birthday is closest to O A $57,763 OB. 100 MB OC. $127.078 OD 5115,575

Answer 1

FV of Growing Annuity = First Payment * [{(1 + r)ⁿ - (1 + g)ⁿ} / (r - g)]

= $2,000 * [{(1 + 0.09)¹⁸ - (1 + 0.05)¹⁸} / (0.09 - 0.05)]

= $2,000 * [{4.7171 - 2.4066} / 0.04]

= $2,000 * [2.3105 / 0.04]

= $2,000 * 57.7625

= $115,525.06

So, Option "D" is correct.