Saving for College Case

Saving for College Case - BADM 7090 Case Saving for...

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BADM 7090 Case Saving for College: An Application of Time Value of Money Paul and Alix Williamson are both graduate business students at LSU. Paul, 29, is working on an MBA with a finance concentration while Alix, 28, is pursuing her masters in accounting. They have been married for four years and Alix has just given birth to their first child, Kate. Being fairly savvy in finance, Paul and Alix are determined that they will have enough money so that Kate can go to LSU. They feel fairly confident that their knowledge of time value of money and investing will enable them to acquire enough resources so that Kate will be a Tiger freshman in 18 years. Paul and Alix determine that the total cost (tuition, room & board, books, etc.) for current in-state freshmen at LSU is approximately $12,500 a year. Estimates put the rate of growth of college costs at about 5% a year. They know that while they can invest in stocks for at least a period of time and possibly earn more than the so-called risk-free rate, they feel they should invest very conservatively and would prefer to take no risk. Thus, they will put the money in a bank account that they believe will earn 4% a year. To simplify the problem, they will assume that Kate is born at time 0 and that they will begin making annual deposits starting one year later for a given number of years.
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Saving for College Case - BADM 7090 Case Saving for...

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