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After tax return on investment

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Reference no: EM132443302

Problem: You must show your work when solving these problems. Please use the cash flow method from the examples in the content, unless you are already familiar with another method and can show your work using the steps of that method.

1) Jean has an 18 year-old daughter that is going to college this year for five years. The tuition is $18,000 per year and is expected to increase at 5% per year.  She believes she can earn 7% per year on her investment. What lump-sum must Jean deposit today to pay for her daughter's education?

2) Jennifer wants to save for her son's education. He son was born today and will go to college at age 18 for five years. Tuition is currently $15,000 per year, and tuition inflation is estimated to be 7%. Jennifer believes she can earn an 11% after tax return on her investment.  How much must Jennifer save at the end of each year if she wants to make her last payment at the beginning of her son's first year of college? (Hint: Step 1, N=17 and Step 2, N=18)

3) Assume the same scenario as problem 2, but now Jennifer wants to save until the beginning of her son's last year of college.  How much does Jennifer have to save at the end of each year to meet her goal? (Hint: N=22 for Step 2)

4) Assume the same scenario as problem 3, but instead of Jennifer making payments at the end of each year, assume she makes her payments at the beginning of each year.  How much does Jennifer have to save at the beginning of each year to meet her goal? (Hint: Change to BEGIN mode and N=23 for Step 2)

5) Julie has two children, Beau age 5 and Alex age 2, that she wants to start saving for their college education. Currently, tuition is $10,000 per year and tuition inflation is 6%. Julie believes she can earn a 10% after tax return on her investment. She expects her children to start college at age 18 and go to college for 4 years.  Julie wants her last savings payment to be made when the oldest child starts college. How much must Julie save at the end of each year to reach this education funding goal?

Reference no: EM132443302

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