I'd like some help with this one,
Mike and Mary Mauldin have been married for ten years and their son Mike Jr. is five years old. They do not plan to have any more children. They expect Mike Jr. to attend college, and they realize that college costs will continue to rise over time. They want to get started now to save the money they will need to help pay for it. They do not plan to pay all of the expenses but would like to be able to provide $25,000 a year for each of the four years Mike Jr. will be in school. They figure he will start college at age 18.
When Mike Jr. was born (five years ago), Mike and Mary's parents each set aside $5000 in a fund to help pay his college expenses. That money has been sitting in an account earning 5% per year and will continue to do so until Mike Jr. starts college at age 18.
You have the following questions to answer.
1) How much will Mike and Mary need to have when Mike Jr. starts college to be able to give him the $25,000 a year they plan to provide to help pay for his expenses and have a zero balance at the end of the four years. Assume the funds they have accumulated earn 5% interest during the time he is in college and assume that the money will be given to him at the end of each year that he attends school.
2. How much of the figure you calculated (in question 1 above) will be provided by the money the grandparents have set aside for Mike Jr. education? How much more will Mike and Mary have to accumulate on their own to have the amount you calculated (in question 1 above)?
3. Mike and Mary plan to start one year from today to set aside money each year until Mike Jr. starts college at age 18. The money will be deposited in an account earning 5% per year. How much will they have to deposit each year to have the amount they will have to accumulate (you figured this out in question 2 above)?
4. Just before he graduates from High School, Mike Jr. tells his parents that he realizes that it will be a big burden for them to pay for his education and he has decided to enlist in the Army, and use his military education benefits to pay for his college education. Mike and Mary are very moved by their son's understanding and proud of his decision to serve his country and fund his education at the same time. They plan to return the grandparents contributions (with the accumulated interest) and immediately use $30,000 of the money they accumulated on their own, to renovate the kitchen and bathroom in their house and will leave the balance in the account until Mike Jr. completes his military duty (four years from his 18th birthday) and give it to him to make a down payment on a house. If this balance remains in the account and continues to earn 5% interest, how much will they be able to give him to make the down payment?