business math: planning for children's college funds

scorpio_gal17

New member
Joined
Mar 9, 2008
Messages
2
You have just had your 30th birthday. You have two children. One will go to college 10 years from now and require four yearly payments for college expenses of RM10,000, RM11,000, RM12,000 and RM13,000. The second child will go to college 15 years from now and require four yearly payments for college expenses of RM15,000, RM16,000, RM17,000 and RM18,000. In addition, you plan to retire in 30 years. You want to be able to withdraw RM50,000 per year from an account throughout your retirement. You expect to live 20 years beyond retirement. The first withdrawal will occur on your 61st birthday. All savings earn a 13% annual rate of return.

What equal, annual amount must you save for each of the next 30 years in order to meet these goals?

I think what i have to do is calculate the present value of funds needed for college expenses for first child, second child and for the retirement annuity. Is that all and i am not sure what to start with. I hope someone can help me.

Thanks in advance
 
scorpio_gal17 said:
I think what i have to do is calculate the present value of funds needed for college expenses for first child, second child and for the retirement annuity. Is that all and i am not sure what to start with.
Correct.
Assuming:
1: annual deposits are made at end of years 1 to 30
2: the college amounts are withdrawn end of year 10 to 13, end of year 15 to 18
3: 20 withdrawals of $50,000 are made end of year 31 to 50

then you should get annual deposits = 3869.07
 
I got a different answer that is around $8561. This is because i think i used the uneven cash flow to find the present value for the childrens college payments. I am not sure of the begining. could you please explain. I used that formula as the amount is different for all the period. I did not take into account that the money is increasing by$1000 for every period as my notes say that every period must have the same amount of money(even flow of cash) and not see the amount it is incresing is even or not.
 
Sorry for dragging up such an old thread, but I have the same problem. I know the 3896.07 is correct, I just cannot seem to figure out how to work back to it. Could you please just give the steps that must be taken.
Correct.
Assuming:
1: annual deposits are made at end of years 1 to 30
2: the college amounts are withdrawn end of year 10 to 13, end of year 15 to 18
3: 20 withdrawals of $50,000 are made end of year 31 to 50

then you should get annual deposits = 3869.07
 
Top