Ben plans to send his son to college in two years. He expects him to earn two-thirds of his tuition payment in scholarship money, so he estimates that his payments will be $8,000 a year for four years. To estimate whether he has set aside enough money, he ignores possible inflation in tuition payments and assumes that he can earn 5 percent annually on his investments.
a. How much should he set aside now to cover these payments?
b. How much should he set aside if he decides to make two equal contribution, one – at the end
of the first year, another – at the end of the second year.