Suppose that a young couple has just had their first baby and they wish to ensure that enough money will be available to pay for their child's college education. Currently, college tuition, books, fees, and other costs average $12,000 per year. On average, tuition and other costs have historically increased at a rate of 5% per year. Assuming that college costs continue to increase an average of 5% per year and that all her college savings are invested in an account paying 8% interest, then the amount of money she will need to have available at age 18 to pay for all four years of her undergraduate education is closest to ________.

Question

Quizplus · Accepted Answer

A) This is a two-step problem.
Step 1: Determine the cost of the first year of college. 11ea84dc_f57a_f9cf_9a63_89e5c1273c50_TB1316_11_TB1316_11 Step 2: Figure out the value for four years of college.
PV of a growing annuity 11ea84dc_f57a_f9d0_9a63_fd943c693fe5_TB1316_11_TB1316_11 11ea84dc_f57a_f9d1_9a63_e72458013294_TB1316_11_TB1316_11

Suppose That a Young Couple Has Just Had Their First