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Author Question: John and Daphne are saving for their daughter Ellens university education. Ellen is now 10 years old ... (Read 45 times)

dongbo

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Question 1

If a bank pays a5.5% nominal rate, with monthly compounding on deposits, what effective annual rate (EFF%) does the bank pay?

5.35%


5.64%


6.13%


6.59%



Question 2

John and Daphne are saving for their daughter Ellen’s university education. Ellen is now 10 years old and will be entering university 8 years from now (t = 8). University tuition and expenses at City U are currently $15,000a year, but they are expected to increase at a rate of4% a year. John and Daphne expect Ellen to graduate in 4 years. (If Ellen wants to go to graduate school, she will be on her own.) Tuition and other costs will be due at the beginning of each school year (at t = 8, 9, 10, and 11). So far, John and Daphne have accumulated $14,000 in the university savings account. Their long-run financial plan is to add an additional $6,000 at the beginning of each of the next 4 years (at t = 0, 1, 2, and 3). Then they plan to make four equal annual contributions at the end of each of the following five years (t = 4, 5, 6, 7, and 8). They expect their investment account to earn8.5%. How large must the annual payments be at t = 4, 5, 6, 7, and 8 to meet Ellen’s anticipated university costs?

$1,398.37


$1,472.01


$1,569.82


$1,627.16



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Marked as best answer by dongbo on Aug 7, 2023

swagmaster69

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dongbo

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Reply 2 on: Aug 7, 2023
Great answer, keep it coming :)


mohan

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Reply 3 on: Yesterday
Gracias!

 

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