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Tuition Costs

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2. College Ed. saving account (SA). For 2 kids, first kid will start in 5 yrs., second in 7 yrs. Tuition cost $10,000 today, and rising 5% per yr. Tuition is paid out at beginning of yr., both kids in 4-yr programs. SA PV $50,000. Plan fixed contributions over next 5 yrs at end of each yr. with last contribution the end of year that first kid starts college. SA earns 8% per yr. How much to contribute each year to meet total tuition costs.
a. 2894
b. 3712 (correct)
c. 4125
d. 5343
e. 6750


Solution Preview

The first thing is to find out how much will the education cost since it is rising by 5% annually. We construct a table of tuition cost rising 5% annually. This is row 2 in the attached file. Each year the amount increases by 5%. For the fist kid, the relevant years would be 5,6,7,8 since the kid starts in year 5 and the program runs for 4 years. For the 2nd kid the relevant years are 7,8,9,1, the kid starts in year 7 and the program ...

Solution Summary

The solution explains how to calculate the total tuition costs and the savings needed so as to reach the amount of tuition costs.