Assume you now have a child and you are planning for her college education. You would like to make monthly deposits over the next 21 years (first payment to be made one month from today) with the final payments to be made at her 21st birthday(a total of 252 deposits) so that you will be able to cover her expected expenses while in school. You expect to pay expenses on her 18th, 19th,20th,and 21st birthdays (months 216, 228,240 &252 respectively. assume that the current (time period 0) annual cost of college is $35000 and that you expect annual inflation to be 6% per year from now through your child graduation date. If you expect to earn a return of 10% annually on your investments what will the amount of each of the monthly deposits?
The solution calculates the value of Annuity (monthly deposits) to be able to cover expected expenses while in school.