You plan to save $7,000 each of the next 40 years, and invest that money in an account that pays 9% annual interest. In addition, you plan to pay for your child's college education beginning in 20 years. You expect that education to cost $30,000 per year for four years. To pay for the education, you will simply withdrawal money from your investment account. In addition, you currently have an outstanding loan with a balance of $15,000 and an annual interest rate of 9%. You plan to pay off that loan over the next few years. A timeline depicting this situation follows.
|
Date
|
0
|
1-19
|
20-23
|
24-40
|
|
Deposits
|
|
$7,000
|
$7,000
|
$7,000
|
|
Withdrawals
|
|
|
$30,000
|
|
|
Loan Balance
|
$15,000
|
|
|
|
a) How much money will you have just after you make your last deposit forty years from today?
b) How much money will you have 5 years later (year 45) if you make no additional deposits or withdrawals?
c) As an intelligent and informed financial planner, you have been asked to evaluate the assumptions and analysis above. What specific flaws do you see (if any)