Question

8) Assuming that college costs continue to increase an average of 4% per year and that all her collegesavings are invested in an account paying 7% interest, then the amount of money she will need tohave available at age 18 to pay for all four years of her undergraduate education is closest to

Answer 1

The amount in her savings account at the age of 18 years should be $97107.29

Step-by-step explanation:

As the complete question is not given, by finding a similar question is found online and it is enclosed herewith.

From the data the current per year cost of college is given as

PV=$12500

Rate of Growth=i=4%

The cost of college when the baby is 18 years is given as

`FV=PV*(1+i)^n\\FV=12500*(1+0.04)^(18)\\FV=\$25322.71`

Using the present value of growing annuity find the four years college fee

`Total Money=((C)/(r-g))*(1-((1+g)/(1+r))^n)*(1+r)`

Here

• C is calculated above as $25322.71
• R is the interest rate which is given as 7%
• G is the growth rate which is given as 4%
• n is the number of years which is 4 years

`Total Money=((25322)/(0.07-0.04))*(1-((1+0.04)/(1+0.07))^4)*(1+0.07)\\Total Money=\$97107.29`

So the amount in her savings account at the age of 18 years should be $97107.29