Present Value of Money
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Joe planned to put his son, John, to a prestigious university called Brain Trust University (BTU) 10 years from now. Currently, total estimated cost (tuition, room and board, books, and other expenses) is about $60,000 per year. This cost is expected to increase at the average rate of 8% per year for the foreseeable future. It is assumed that, ten years from now, John will be attending BTU for 4 years and that Joe can invest in a 529 plan, which is tax-free upon withdrawal, at an average rate of 10%.
Furthermore, John is expected to receive $100,000 trust fund from his favorite aunt, Susan, when he enter a college ten years from now. How much must Joe has to contribute to the 529 plan EACH YEAR, starting one year from now, for the next ten years to cover John's college cost for four years?
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