Suppose that you parents started to save for your college education when you turned 10. Their annual contribution to the fund was $10,000. You graduated from high school at the age of 18. During the 8 year period, the return on your college fund was 6% on average.
(a) Suppose that two years before you graduated from high school, financial crisis broke out, which lowered the return on your collage fund to 1% on average for those two years. How much more must your parents contribute towards your college fund so that you will end up with the same amount of money as in part a). Assume that the contribution for the last two years are the same.
(b) Assume that for the next 4 years while you are in college, you have locked-in tuition of $12,000 plus $10,000 of living expenses. Any money you didn't withdraw from your college fund is invested in the US government bond and earns interest of 2.5% on average. Do you have enough money to pay for your college education?