Question

3. How much money will Mr. & Mrs. Ahmad have to deposit per month to allow Abdullah to attend American University? How much money will have to be deposited per month to allow Abdullah to attend the British University? (HINT: To answer this question you need to consider the costs of ALL four years.)

4. What is the relationship between the amount that must be deposited monthly by the parents and the future increases in both tuition and living expenses?

answer based on the following please

Mr. and Mrs. Ahmad owns a villa in Dubai. Mr. Ahmad is partner in a Pharmaceutical Company. Mrs. Ahmad stays home with their child, Abdullah, who is age five. Until recently, the Ahmad’s have felt very comfortable with their financial position. After visiting their family financial planner, the couple became concerned that they were spending too much and not putting enough funds aside for both their child's future education needs and their own retirement. Mr. Ahmad earns $95,000 per year, but with the rising costs of education, their past contribution efforts have left them short of their financial goals. To estimate the amount of money Ahmad’s need to begin putting away for future security, some general information was obtained by their financial planner. The couple felt that the amount of money they currently contribute to their saving account would be sufficient for their retirement needs. What they had not accounted for was Abdullah's education. Mr. Ahmad is a graduate of American University Dubai, a private university with an extremely high tuition fee of approximately $20,000 per year. Mrs. Ahmad graduated from the British University Dubai. The tuition expense there is only $2,500 per year. When Abdullah turns 18, the couple wishes to send him to either of these exceptional universities. They have a slight preference for the American University. The problem, however, is that with the rate at which tuition fee is increasing Ahmad is not sure they can raise enough money. To assist in the calculations, assume the tuition at both universities will increase at an annual rate of five per cent. Living expenses are currently estimated at $4,000 per year at both schools. This expense is expected to grow at only three per cent per year. Further assume Ahmad can deposit their money into a growth oriented Investment fund at Dubai International Capital, which has historically earned a 12 per cent return per annum (one per cent per month). The couple wishes to have a pre-determined monthly amount automatically drafted from their checking account. When Abdullah starts college they will slowly liquidate the account by making an annual payment to Abdullah to cover tuition and living expenses at the beginning of each year for the four years he will be in college.

Answer 1

Child Age	5			Annual Salary	95000
Child Age Future	18
			Year	American University Cost		British University Cost
			1	20000		2500
			2	20000		2500
			3	20000		2500
			4	20000		2500
			Growth	5%
			Other Exp	2500
			Growth	3%
			N	13
			At 18th Year
			Tution Fee	$37,712.98		$4,714.12
			Other Exp	$3,671.33		$3,671.33
			Total Amt Required
			Investment rate	12%

Year	Tution	Other Exp	Total Expenses				Total Expenses
18	37712.98285	3671.334284	41384.31713		4714.123	3671.334284	8385.457139
19	39598.63199	3781.474312	43380.1063		4949.829	3781.474312	8731.303311
20	41578.56359	3894.918542	45473.48213		5197.32	3894.918542	9092.23899
21	43657.49177	4011.766098	47669.25787		5457.186	4011.766098	9468.952569
Now, the corpus required in 18th year would be,					Now, the corpus required in 18th year would be,
	150297.77				30169.35
N	13				N	13
I	12%				I	12%
FV	150297.77				FV	30169.35
PV	0				PV	0
PMT	$5,362.20				PMT	$1,076.36