Question 1

 (1  i )n  1
FVn (annuity due)  PMT   (1  i )
 i 

PMT = annuity payment deposited or received

i = discount rate (or interest rate)
n = number of periods

FV = 4000 ¿ (1.1)
FV = $3 483 899.41
Question 2

Cost of college for 4 years :

Future Value = Present Value (1+ Annual Interest Rate )Number of Years
Years Present Value (1+ Annual Interest Rate )Number of Years Future Value ($)
1 16000 x (1.04)10 23 684
2 16000 x (1.04)11 24 631
3 16000 x (1.04)12 25 617
4 16000 x (1.04)13 26 641

PV = FV x PVIF
PV = Present Value of Annuity
FV = Future Value
PVIF = Present Value Interest Factor
1
PVIF = n
(1+i)
i = discount rate (or interest rate)
n = number of periods

Years FV ($) PVIF PV ($)

0 1
23 684 23 684
(1+0.08)0
1 24 631 0.926 22 808
2 25 617 0.857 21 954
3 26 641 0.794 21 153
Total 89 599

$9000 of saving account in 4 years :

Future Value = Present Value (1+ Annual Interest Rate )Number of Years

= 9000 (1+0.08)4
= $12 244.40

Future Value of saving account for next 5 years :

 (1  i )n  1
FVn (annuity due)  PMT   (1  i )
 i 
 FVn = Future Value
PMT = annuity payment deposited or received at the beginning of each period
i = interest rate per period
n= number of periods
(1+0.08)4 −1
FV = 3000 [ ] (1+0.08)
0.08
= $14 599.80
TOTAL SAVING FOR FIRST 5 YEARS = $29 844.20

Future Value of saving at year 10 by using total saving for the first 5 years as Present Value :
Future Value = Present Value (1+ Annual Interest Rate )Number of Years

= 29 844.2 (1+0 .1 2)6

= $58 907

Total amount of saving needed starting year 5 until year 10 :

Require money to save = College Cost – Saving
= 89 599 – 58 907
= $30 692

The annual payment in the subsequent 6 years :

 (1  i )n  1
FVn  PMT  
 i 

PMT = 30 692 ÷ [ 1+0. 12¿ 6−1 ¿ ¿ 0. 12 ]

= $3 782