John and Daphne Are Saving for Their Daughter Ellen's University

Multiple Choice

John and Daphne are saving for their daughter Ellen's university education.Ellen is now 10 years old and will be entering university 8 years from now (t = 8) .University tuition and expenses at City U.are currently $14,500 a year,but they are expected to increase at a rate of 3.5% a year.John and Daphne expect Ellen to graduate in four years.(If Ellen wants to go to graduate school,she will be on her own.) Tuition and other costs will be due at the beginning of each school year (at t = 8,9,10,and 11) .So far,John and Daphne have accumulated $15,000 in the university savings account.Their long-run financial plan is to add an additional $5,000 at the beginning of each of the next 4 years (at t = 0,1,2,and 3) .Then they plan to make four equal annual contributions at the end of each of the following five years (t = 4,5,6,7,and 8) .They expect their investment account to earn 9%.How large must the annual payments be at t = 4,5,6,7,and 8 to meet Ellen's anticipated university costs?

A) $818.91
B) $862.01
C) $907.38
D) $955.13