You are working as a financial planner. A couple has asked you to put together an investment plan for the education of their daughter. She is a bright 7-year-old (her birthday is today), and everyone hopes she will go to university after high school in 10 years, on her 17th birthday. You estimate that today the cost of a year of university is $10,000, including the cost of tuition, books, accommodation, food, and clothing. You forecast that the annual inflation rate will be 4%. You may assume that these costs are incurred at the start of each university year. A typical university program lasts 4 years. The effective annual interest rate is 6% and is nominal.
a. Suppose the couple invests money on her birthday, starting today and ending l year before she starts university. How much must they invest each year to have money to send their daughter to university?
b. If the couple waits 1 year, until their daughter’s 8th birthday, how much more do they need to invest annually?