John and Daphne Are Saving for Their Daughter Ellen's College

question 119

Multiple Choice

John and Daphne are saving for their daughter Ellen's college education.Ellen just turned 10 (at t = 0) ,and she will be entering college 8 years from now (at t = 8) .College tuition and expenses at State U.are currently $14,500 a year,but they are expected to increase at a rate of 3.5% a year.Ellen should graduate in 4 years--if she takes longer or wants to go to graduate school,she will be on her own.Tuition and other costs will be due at the beginning of each school year (at t = 8,9,10,and 11) . So far,John and Daphne have accumulated $18,000 in their college savings account (at t = 0) .Their long-run financial plan is to add an additional $5,000 in each of the next 4 years (at t = 1,2,3,and 4) .Then they plan to make 3 equal annual contributions in each of the following years,t = 5,6,and 7.They expect their investment account to earn 9%.How large must the annual payments at t = 5,6,and 7 be to cover Ellen's anticipated college costs?

• A) $562.25
• B) $658.42
• C) $739.80
• D) $917.35
• E) $673.22

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Definitions:

Methane

A colorless, odorless gas, CH4, that is the simplest alkane and a major component of natural gas, contributing to greenhouse gas emissions.

Potassium Chloride

A metal halide salt composed of potassium and chlorine, used in various applications including as a fertilizer, in medicine, and in food processing.

Lithium Bromide

A chemical compound used mainly in air conditioning systems as a desiccant due to its hygroscopic nature and in some pharmaceuticals; its formula is LiBr.

Electrolytes

Minerals in your body that have an electric charge, crucial for various bodily functions including nerve signaling and fluid balance.