Question: Suppose that a young couple has just had their first baby and they wish to ensure that enough money will be available to pay for their child's college education. Currently, college tuition, books, fees, and other costs, average $12,500 per year. On average, tuition and other costs have historically increased at a rate of 4% per year.

1. Assuming that tuition and other costs continue to increase at 4% per year, what would be the cost for the first year in college for this baby in 18 years, when she enters college?
2. Assuming that college costs continue to increase at 4% per year and that all her college savings are invested in an account paying 7% interest, what would be the amount of money that she will need to have available at age 18 to pay for all four years of her undergraduate education?
3. How much would the couple need to put every year for the next 18 years (starting next year) so that enough money will be in the account for the college tuition when the baby becomes 18.

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