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Homework answers / question archive / 1) You forecast that in 15 years, it will cost $190,000 to provide your child with a 4-year college education
1) You forecast that in 15 years, it will cost $190,000 to provide your child with a 4-year college education. Will you have enough if you take $75,000 today and invest it for the next 15 years at 4 percent?
2) If you can earn 4 percent, how much will you have to save each year if you want to retire in 35 years with $1 million?
1). Computation of the future value:-
FV = PV*(1+rate)^n
= $75,000*(1+4%)^15
= $75,000*1.8009
= $135,070.76
Hence $75,000 today would not be sufficient to pay for $190,000 in 15 years.
2). We can calculate the annual savings by using the following formula in excel:-
=pmt(rate,nper,pv,-fv)
Here,
Pmt = Annual savings
Rate = 4%
Nper = 35 periods
PV = $0
FV = $1,000,000
Substituting the values in formula:
= pmt(4%,35,0,-1000000)
= $13,577.32
