Assume you are planning how to finance your child's college education. The child is 3 years old now so there are 15 years to go before your child enters college at age 18. According to your estimates you will need $80,000 in the bank at that time.
a. If you believe you can earn 9% a year, on average, between now and the time your child starts college, how much will you have to invest each year between now and then in order to reach your target? (for simplicity, assume end-of-year payments)
b. It appears the annual payment required to reach your target is more than you can afford. If the most you can afford to invest each year is $2,000 what average annual rate of return must you earn in order to reach your target?
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