A father is planning a savings program to put his daughter through college. His daughter is now
13 years old. She plans to enroll at the university in 5 years, and it should take her 4 years to
complete her education. Currently, the cost per year (for everything – food, clothing, tuition,
books, transportation, and so forth) is Rs 12500, but a 5 percent annual inflation rate in these
costs is forecasted. The daughter recently received Rs 7500 from her grandfather’s estate; this
money, which is invested in a bank account paying 8 percent interest, compounded annually,
will be used to help meet the costs of the daughter’s education. The remaining costs will be met
by money the father will deposit in the savings account. He will make six equal deposits to the
account, one deposit in each year from now until his daughter starts college. These deposits will
begin today and will earn 8 percent interest, compounded annually.