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PS_Chapter04

# Theydecidetomakedepositsintoaneducationalsavings

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Unformatted text preview: er. D) A growing perpetuity is a cash flow stream that occurs at regular intervals and grows at a constant rate forever. Suppose that a young couple has just had their first baby and they wish to ensure that enough money will be available to pay for their childʹs college education. Currently, college tuition, books, fees, and other costs, average \$12,500 per year. On average, tuition and other costs have historically increased at a rate of 4% per year. 7) Assuming that costs continue to increase an average of 4% per year, tuition and other costs for one year for this student in 18 years when she enters college will be closest to: A) \$12,500 B) \$21,500 C) \$320,568 D) \$25,323 8) Assuming that college costs continue to increase an average of 4% per year and that all her college savings are invested in an account paying 7% interest, then the amount of money she will need to have available at age 18 to pay for all four years of her undergraduate education is closest to: A) \$97,110 B) \$107,532 C) \$101,291 D) \$50,000 13) Suppose that a young couple has just had their first baby and they wish to insure that enough money will be available to pay for their childʹs college education. They d...
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