Joe and Jill College Expense Fund: In anticipation of the immense college expenses, Joe and Jill started an annual investment program on their child's eighth birthday that will last until the eighteenth birthday. They plan to invest the following amounts at the beginning of each year: Year 1 2 3 4 5 6 7 8 9 10 Amount ($) 2000 2000 2500 2500 3000 3500 3500 4000 4000 5000 To avoid unpleasant surprises, they want to invest the money safely in the following options: Insured savings with 7.5% annual yield, 6-year government bonds that yield 7.9% and have a current market price equal to 98% of face value, and 9-year municipal bonds yielding 8.5% and having a current market price of 1.02 of face value. How should the money be invested?
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First, we need to calculate the total amount of money Joe and Jill will invest over the 10 years. Adding up all the annual investments, we get a total of $32,500. Show more…
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