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Expect annual inflation

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Assume that you just had a child, you are now planning for her college education. You would like to make 43 equal payments over the next 21 years (the first payment to be made immediately, all other payments to be made at 6-month intervals, with the final payment to be made at her 21st birthday) so that you will be able to cover her expected expenses while in school. You expect to pay expenses on her 18th, 19th, 20th, and 21st birthdays. Assume that the current (time period 0) annual cost of college is $6,000, that you expect annual inflation to be 8% for the next 5 years, and then 5% thereafter. If you expect to be able to earn a return of 4% every 6 months on your investments (a simple rate of 8% with semiannual compounding), what will be the amount of each of the 43 payments?

Reference no: EM131179350

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