Saving for College
John Smith's son, Richard, is planning on attending a private college when he graduates from high school 5 years from now (2021). The annual tuition at the school is growing at a 6 percent rate and is expected to do so for the foreseeable future (including while Richard is in college). The current tuition rate is $15,000 annually and Richard must pay tuition at the beginning of each year for the 4 years he plans on attending. Mr. Smith would like to invest money over the next 5 years for Richard’s tuition (he will stop making deposits the year he begins college). How much must Mr. Smith deposit annually (beginning at the end of this year) in order to ensure that Richard has enough funds to attend the college if he can earn 12% on his investments?
Now assume that John is going to continue making payments AFTER Richard starts college. In other words, John will make 8 total payments with the last payment corresponding to Richard’s last tuition payment. This will leave $0 in the investment account. In this case, how much must John deposit annually in order to ensure that Richard has enough Funds to attend college. Assume the same investment rate as above.