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Chp. 9 46 and 47

# Chp. 9 46 and 47 - Chapter 9 46 Your younger sister...

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Chapter 9 46. Your younger sister, Brittany, will start college in five years. She has just informed her parents that she wants to go to Eastern State U., which will cost \$30,000 per year for four years (costs assumed to come at the end of each year). Anticipating Brittany’s ambition, your parents started investing \$5,000 per year five years ago and will continue to do so for five more years. How much more will your parents have to invest each year for the next five years to have the necessary funds for Brittany’s education? Use 10 percent as the appropriate interest rate throughout this problem (for discounting or compounding). Round all values to whole numbers. Solution: Present value of college costs Appendix D PV A = A x PV IFA  (10%, 4 periods) = \$30,000 x 3.170 = \$95,100 Accumulation based on investing \$5,000 per year for 10 years. Appendix C FV A = A x FV IFA  (10%, 10 periods) = \$5,000 x 15.937 = \$79,685 Additional funds required 5 years from now.

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