Presently college education is increasing at the rate of 7% per year. If currently college cost is running at $21,000 a year, what will the Marcotte’s need to have saved up for Paloma in 7 years and for Joel in 15 years. Assume that the Marcotte’s are in the 25% tax bracket, and 6.5% for the State taxes. Furthermore, you can assume that the Marcotte’s can earn 1% on their investments. You can use a financial calculator or the TVM formulas to find answers to the following: Hints in responding: • remember to state your calculator keystroke or show your formula components for full credit • assume all rates shown except the inflation rate, are compounded monthly. 682 o For instance, 84 months for Paloma and 180 months for Joel for time periods. o Check to make sure your interest rate is equivalent if you’re using a financial calculator!)
How much will they have saved given their current $10,000, and assuming they presently can only save $100 per month for educational funding?
i. By the time Paloma leaves for college?
ii. By the time Joel leaves for college, assuming they do not use savings for Paloma?