Assignment:
You have taken a job as a financial consultant, and your first clients arrive in your office. Since you are new on the job, you particularly want to impress them with your thorough understanding of financial matters and your ability to explain mathematical ideas clearly. Your clients, Maria and George Jefferson, have both struggled to complete their undergraduate college degrees at night school and online, working hard to pay tuition themselves. They both graduated in 2005, and are now expecting twins, due in 8 months. The Jeffersons have come to you for help in planning for their children college education. They are hoping to save enough money to pay for four years of undergraduate education for both children. You meet with them, discuss their questions, plans, and needs, and offer to write up a report for them in which you will advise them, justifying your advice with an explanation of your calculations.
In your first conversation with Maria and George, you sensed immediately that Maria feels strongly that the couple should make sacrifices now in order to save enough to pay for both children college tuition. George, on the other hand, looks forward to spending some of his hard-earned money on a few of life luxuries; he wants to move to a larger house, buy a bigger television, and buy a second car. Your first task, therefore, is to convince George of the importance of providing for his children college tuition. Use the information in Table I (below) to write an introductory paragraph explaining why parents should plan ahead to help their children pay for college.
Your next task is to help the Jeffersons determine how much money they will need to save in order to guarantee that they will have enough for both children tuitions for four years of college. In Table II you will find information about the rising tuition and fees for 4-year colleges in the US over the last thirty years. Using 1976 as the starting year, graph the data in this table. Your x-axis should represent time, starting in 1976, and your y-axis should represent tuition costs. Use two different colors to distinguish between costs at private colleges and costs at public colleges. The points will not be perfectly linear, but in each case, private and public, you can draw a line that comes close to connecting the points. Draw these two lines, and extend them at least as far as 2030.
Use your lines to approximate the costs at private and public colleges in the years 2026, 2027, 2028, and 2029. Use these figures to determine the total amount of money George and Maria need to save in order to pay tuition and fees for both children. The second paragraph of your report should explain your work in creating the graph, and show the Jeffersons how you reached the totals for amounts they must save, in both cases, public and private colleges.
Both Jeffersons are working now, but when the twins arrive soon, Maria will take some time off from full-time work. They want to arrange to have money automatically deposited on the first of every month to an education account, and they think that with only one of them working, they will be able to deposit at most $120/month in the account. You know that the best education account available right now pays an annual interest rate of 9% compounded monthly, and you also know the formula for calculating total amount in the account:
A(t) = P [ ( 1 + r/12)12t - 1 ] ( 1 + 12/r )
where A(t) = the amount in the savings account after t years
P = the amount of money invested each month (in this case $120)
r = the annual rate of interest, written as a decimal (in this case 0.09)
t = the number of years the money is kept in the account
Using the formula above, calculate for the Jeffersons the total amount that they will have in the education account in 18 years, assuming that they regularly deposit $120 in the account on the first of every month throughout the 18-year period.
Maria knows that taking care of twins will be a full-time job, but she also hopes to have the energy to do some tutoring on weekends when George can take care of the children. She thinks that she will be able to manage 6 hours/week of tutoring, for which she charges $40/hour. If she does find herself able to work those hours, she and George could deposit a total of $1080/month into the education savings account. Compute for them their 18-year total assuming the new monthly deposit.
The third and fourth paragraphs of your report should address the results of your calculations of total savings based on monthly deposits of $120 or $1080. Explain what the respective totals will be in 18 years, discuss whether or not those totals will completely cover college costs for four years of education at public and/or private universities. If you find that there is more than enough money to pay both children tuitions and fees for four years, you may wish to help the Jeffersons think about other college expenses they should also be planning for, such as room and board, textbooks, and other spending money.
Your report should have a closing paragraph in which you summarize your advice and again emphasize the importance of financial planning for college expenses.
Table I: Average Earnings of Year-Round Full-Time Workers by Gender and Education Attainment in the U.S., 2004
|
Gender
|
Less than 9th grade
|
Some high school
|
High school graduate
|
Some college
|
Associate degree
|
Bachelor degree or more
|
Males
|
$25,169
|
$29,768
|
$39,117
|
$47,160
|
$48,724
|
$83,819
|
Females
|
$18,988
|
$21,025
|
$28,537
|
$32,280
|
$36,472
|
$54,078
|
Table II: Tuition and fees at Private and Public 4-Year Colleges, 1976-2006
|
Year
|
Private
|
Public
|
|
1976-77
|
$2,272
|
$433
|
|
1980-81
|
3,617
|
804
|
|
1985-86
|
6,121
|
1,318
|
|
1990-91
|
9,340
|
1,908
|
|
1991-92
|
9,812
|
2,107
|
|
1992-93
|
10,448
|
2,334
|
|
1993-94
|
11,007
|
2,535
|
|
1994-95
|
11,719
|
2,705
|
|
1995-96
|
12,216
|
2,811
|
|
1996-97
|
12,994
|
2,975
|
|
1997-98
|
13,785
|
3,111
|
|
1998-99
|
14,709
|
3,247
|
|
1999-2000
|
15,518
|
3,362
|
|
2000-01
|
16,233
|
3,487
|
|
2001-02
|
17.272
|
3,725
|
|
2002-03
|
18,273
|
4,081
|
|
2003-04
|
19,710
|
4,694
|
|
2004-05
|
20,082
|
5,132
|
|
2005-06
|
21,235
|
5,491
|