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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

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

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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 ...

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