What is the nominal amount invested in year one

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Reference no: EM132002353

Ms. Wells has a child and wishes to begin saving for Junior's college expenses. Junior will enter college in six years. Assume that Junior will spend 4 years in college, that the real(inflation adjusted) annual cost of a college education will remain at $24,000, that the nominal interest rate is 7.1%, that the expected rate of inflation 5.0%, and that the first college payment is due at time 6 and the last payment is due at time 9. Ms. Wells wants to make 9 annual investments(beginning one year from now and ending 9 years from now) such that the savings will cover the cost of college. Her first investment (at time 1) will be $C(in real terms) and subsequent investments will grow (in real terms) by 1% per year. terms) by 1% per year.

(a) What is the (real) amount of her last investment, in year 9?

(b) What is the nominal amount invested in year 1 and year 9?

Reference no: EM132002353

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