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Consider establishing a college funds at a bank for a couple with a5-year old child. The college funds will earn 8% interest (marketrate), compounded quarterly. Assuming that the child enters collegeat age 18, the couple estimate that an amount of $30,000 per year,in terms of today’s dollars, will be required to support thechild’s college expenses for 4 years. The college expense isestimated to increase at an annual rate of 6% due toinflation.
Determine the equal quarterly deposits the couple must make untilthey send their child to college. Assume that the first depositwill be made at the end of the first quarter after the child’s 5thbirthday and deposits will continue until the child reaches age 17.The child will enter college at age 18 and the annual collegeexpense will be paid at the beginning of each college year. Inother words, the first withdrawal will be made at age 18.

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Patrina Schowalter
Patrina SchowalterLv2
28 Sep 2019

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You are saving for the college education of your two children. They are two years apart in age; one will begin college 16 years from today and the other will begin 18 years from today. You estimate your children’s college expenses to be $36,000 per year per child, payable at the beginning of each school year. The annual interest rate is 6.6 percent. Your deposits begin one year from today. You will make your last deposit when your oldest child enters college. Assume four years of college.

How much money must you deposit in an account each year to fund your children’s education? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Your clients, Jerry and Jenny, are 25 years old. They have come to you for assistance with planning for the cost their child’s education and their retirement. They would like to know if they are on track to reach these two goals. Below are the facts about the family.

Jenny currently earns $150,000 and they expect to need $150,000 per year in today’s dollars in retirement. Jerry is a stay-at-home dad.

Jenny plans to retire at age 67, and they expect to live until age 100.

They also expect that Social Security will provide $40,000 of benefits in today’s dollars at age 67.

Jenny has been saving $5,000 annually in her 401(k) plan.

Their son, Jazz, was just born and is expected to go to college in 18 years.

They want to save for Jazz’s college education, which they expect will cost $20,000 in today’s dollars per year and they are willing to fund 5 years of college. They want all funds needed for Jazz’s college education available the first year Jazz starts college.

They were told that college costs are increasing at 7% per year, while general inflation is 3%.

They currently have $100,000 saved in total and they are averaging a 10% rate of return and expect to continue to earn the same return over time.

1. Calculate the current cost of Jazz’s college education.

2. Calculate the capital needs of the couple at retirement and the current value (today’s value) of their retirement needs.

3. Provide the couple with a summary of their goals with the current total amount needed to reach their goals, showing how you arrived at the total.

4. Given their current resources, does the couple have sufficient resources to achieve their goals? Using calculations, show and explain your answer to the couple.

5. Using calculations and explanations provide the couple with three alternatives for meeting their goals.

6. In your own words, provide the couple with the advantages and disadvantages of two accounts and/or investment instruments that are used specifically to save for college education expenses. Which would you recommend and why?

John is an attorney in a small firm, he is 32 years old and currently earning $78,000 a year. John must continue paying back his student loan by making monthly payments of $300 per month for the next three years at an interest rate of 5% per year. John is married and has three children, Billy, age 2. Cindy, age 6, and sally, age 10. Johns wife, Mary, currently is a stay-at-home mom. When billy is old enough to attend school, Mary hopes to get a job as an administrative assistant in the children's school. That position pays about $20,000 per year. Mary has a high school diploma and a certificate showing she completed one year of practical secretarial training. Mary is 34 years old. John and Mary pay $900 per month for their home mortgage, which will be paid off in 20 years. The interest rate on their mortgage is 4.0%. (Their current equity in the home is $36,000.) The couple own two cars, both 10 years old, and personal property (such as clothes, electronics, furniture, etc) valued at $45,000. Their investments include checking, savings, and mutual fund accounts equal to $8,000. John has no life insurance. Mary has a $25,000 whole life insurance policy that was given to her by her parents when she turned 18. If John should die, Mary would receive approximately $5,000 per year for each child 18 years of age or younger.

John and Mary spend almost all of John's take-home pay each month. They are able to save $300 per month that they deposit into a tax-deferred college fund for the children. The college fund has been earning a respectable rate of return of about 7% per year. Their other investments earn about 5% per year. John is worried about what may happen to his family if he should die. He is considering the purchase of life insurance and asks for your advice.

1) Assuming neither John nor Mary will receive large inheritances, how much life insurance do you think John needs? Calculate the amount using the needs approach. Show all calculations and explain your answer. Also indicate the type of insurance you would recommend, whole life or term. If you recommend term, specify length of the term policy.

2) Assume that John and Mary purchase a whole life policy on John's life in the amount you determined in part 1. (If the amount you determined is less than $200,000, assume an amount of $200,000) Fifteen years later, John decides he doesnt want to make any more premium payments. Which non-forfeiture option would you recommend? Explain the selection.

3) Assume that John and Mary purchase a whole life policy on John's life in the amount you determined in part 1. (If the amount you determined is less than $200,000, assume an amount of $200,000) John dies at age 55. Which settlement option would you recommend? explain your selection and note any assumptions made.

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