Keith Stone has a 10-year-old daughter, Kate, who will be entering college in 8 years. Keith estimates college costs to be $16,000, $17,000, $18,000 and $19,000 payable at the beginning of each of Kate's four years in college. How much must Keith save each year (assume end of year payments)for each of the next 8 years to have enough savings to pay for Kate's education when she starts college? Assume Keith can earn 9% on his savings.

Question

Quizplus · Accepted Answer

The future value of the college costs is $16,000(1.09)^3 + $17,000(1.09)^2 + $18,000(1.09)^1 + $19,000 = $76,770. The present value of the savings is $76,770/(1.09)^8 = $44,552. The annual savings is $44,552/8 = $5,569.

Keith Stone Has a 10-Year-Old Daughter, Kate, Who Will Be