1) You forecast that in 15 years, it will cost $190,000 to provide your child with a 4-year college education

Finance Sep 06, 2020

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?

Expert Solution

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

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