Assume That You Just Had a Child,and You Are Now

question 28

Multiple Choice

Assume that you just had a child,and you are now planning for her college education.You would like to make 43 equal payments over the next 21 years (the first payment to be made immediately,all other payments to be made at 6-month intervals,with the final payment to be made at her 21st birthday) so that you will be able to cover her expected expenses while in school.You expect to pay expenses on her 18th,19th,20th,and 21st birthdays.Assume that the current (time period 0) annual cost of college is $6,000,that you expect annual inflation to be 8 percent for the next 5 years,and then 5 percent thereafter.If you expect to be able to earn a return of 4 percent every 6 months on your investments (a simple rate of 8 percent with semiannual compounding) ,what will be the amount of each of the 43 payments?

• A) $705.86
• B) $731.93
• C) $692.15
• D) $650.46
• E) $785.72

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Definitions:

Physical Addiction

A condition in which the body becomes dependent on a substance, leading to withdrawal symptoms when the substance is not taken.

Psychological Dependence

A condition in which an individual feels a compulsive need to continue using a substance or engaging in a behavior due to emotional or psychological needs.

Herbal Supplements

Products made from plants or plant extracts intended for dietary or medicinal purposes, often used to improve health or treat conditions naturally.

Nicotine

A potent chemical found in tobacco plants that acts as a stimulant in small doses but can be harmful, leading to addiction and various health issues.