Babu Baradwaj is saving for his son's college tuition. His son
is currently 11 years old and will begin college in seven years.
Babu has an index fund investment worth $7,500 that is earning 9.5
percent annually. Total expenses at the University of Maryland,
where his son says he plans to go, currently total $15,000 per year
but are expected to grow at roughly 6 percent each year. Babu plans
to invest in a mutual fund that will earn 11 percent annually to
make up the difference between the college expenses and his current
savings. In total, Babu will make seven equal investments with the
first starting today and the last being made a year before his son
begins college.
What will be the present value of the four years of college expenses at the time that Babu's son starts college? Assume a discount rate of 5.5 percent.
What will the value of the index mutual fund be when his son just starts college?
What is the amount that Babu will have to have saved when his son turns 18 if Babu plans to cover all of his son's college expenses?
How much will Babu have to invest every year in order to have enough funds to cover all his son's expenses?
What will be the present value of the four years of college expenses at the time that Babu's son starts college? Assume a discount rate of 5.5 percent.
What will the value of the index mutual fund be when his son just starts college?
What is the amount that Babu will have to have saved when his son turns 18 if Babu plans to cover all of his son's college expenses?
How much will Babu have to invest every year in order to have enough funds to cover all his son's expenses?
