Time Value of Money calculation:
Annie and Mark are working on their 7-year old daughter’s college plans. She will be starting the 4-year college exactly 11 years from today. They are estimating that college will cost $95,000 annually at that time in the future. In addition, as a college graduation gift they will purchase a car for her that will cost at the time $55,000 they estimate.
(a) How much should they save each year starting the end of this year and depositing equal amounts for 11 years so that they will be able to pay tuition for 4 years at the beginning of each year and afford to buy the car at commencement which takes place at the end of the fourth year? Note that they will start withdrawing funds the very day they make the 11th and last deposit. Also, the saving account invests the deposits at corporate bonds which earn 5% interest annually.
(b) Prepare a table which clearly shows the balance on the account at the end of each year for the next 15 years.Year Begin Balance Interest Deposit or Withdrawal Ending Balance
a)Amount needed at the end of 11 yearAmount needed at the end of 11 yearAmount needed at the end of 11 year Annual College Amount*(1-(1+r)^-n)/r * (1+r) + Amount of Car/(1+r)^n…
