Reference no: EM132417222

Problem: You have a child named Sarah. Sarah is five years old and you'd like to start saving for her college education. You would like her to go to University for four years starting when she is age 18. Assume that the current cost of University is $47,000 and that this cost will increase at the rate of 4.5% per year.

Required:

1. Calculate the future cost of each year of Sarah's future college education
2. How much must you have saved up by the time Sarah is age 18 in order to fully fund her 4 years of education? Assume that the total accumulated funds will earn 6% annually once Sarah enters college.
3. If you were lucky enough to be able to set aside a single large lump sum of money today and not contribute anything more, how much would you need to fully fund Sarah's education? Assume that the lump sum will earn an annual growth rate of 12%
4. How much would you need to save each month in order to fully fund Sarah's education by the time she is 18? Assume that your contributions will earn an annual growth rate of 12%.