Congratulations on the birth of your daughter! Now is a good time to start saving for her college education. Your spouse's parents have offered to give you $15,000 today to begin the fund. Your parents are currently selling a large quantity of land. They expect to contribute an additional $20,000 to your daughter's college fund 5 years from today. You have no money of your own currently saved, but you plan to begin a monthly savings plan at the end of this month. You predict that your daughter will need annual tuition payments once per year (assume they are at the beginning of the year) with the first payment at her 18th birthday when she enrolls in school. Additionally, she will need annual living expenses at the beginning of each year, starting with her 18th birthday and ending with her 21st birthday. If she were starting college today, tuition would $15,000 per year, and living expenses would be $15,000 per year. Living expenses are payable on the first day of each year. Assume that she will complete college in four years. Assume that the cost of living and your savings will rise at the rate of inflation which you expect to be 2.5% per year. Assume that tuition costs will rise at the rate of 4% annually.
Assume that you will begin a monthly savings program which will start one month from today and that you will save through to the date of her last tuition payment (her 21st birthday). You will save $200 in the first month and your savings will increase at the rate of inflation. Based on these plans, how much money will you have on the date she begins college to buy her a car? The interest rate is 8%. All interest rates, growth rates, and inflation rates are EAR's