Parents wish to provide for their child’s college education. Being a bit risk averse, they plan to invest in stable, yet unspectacular, opportunities yielding a 6.0% return. Their best guess at inflation is 4.0% for the foreseeable future. They plan to make investments on the child’s birthday (USA-style—first birthday is 1 year after date of birth), every year from ages 1 through 18. They envision their child needing $100,000 at the beginning of the first year of college, with inflated amounts to follow for 3 more years. The first $100,000 will be needed right at the end of the 18th birthday’s investment —right at the beginning of the 19th year. What equal amount of money must they invest at the end of each year?
Parents wish to provide for their child’s college education. Being a bit risk averse, they plan to invest in stable, yet unspectacular, opportunities yielding a 6.0% return. Their best guess at inflation is 4.0% for the foreseeable future. They plan to make investments on the child’s birthday (USA-style—first birthday is 1 year after date of birth), every year from ages 1 through 18. They envision their child needing $100,000 at the beginning of the first year of college, with inflated amounts to follow for 3 more years. The first $100,000 will be needed right at the end of the 18th birthday’s investment —right at the beginning of the 19th year. What equal amount of money must they invest at the end of each year?
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