What will the value of the index mutual fund

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Babu Baradwaj is saving for his son's college tuition. His son is currently 11 years old and will begin college in seven years. Babu has an index fund investment worth $7,500 that is earning 9.5 percent annually. Total expenses at the University of Maryland, where his son says he plans to go, currently total $15,000 per year but are expected to grow at roughly 6 percent each year. Babu plans to invest in a mutual fund that will earn 11 percent annually to make up the difference between the college expenses and his current savings. In total, Babu will make seven equal investments with the first starting today and the last being made a year before his son begins college.

What will be the present value of the four years of college expenses a year before Babu's son starts college? Assume a discount rate of 5.5 percent.

What will the value of the index mutual fund be when his son A YEAR BEFORE HIS SON starts college?

Reference no: EM132466167

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