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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.
$95,100 PV of college costs
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This note was uploaded on 08/22/2011 for the course ACCOUNTING 201 taught by Professor Stevejoseph during the Winter '11 term at Aarhus Universitet.
 Winter '11
 STEVEJOSEPH

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