A young couple is planning for the education of their two children. They plan to invest the same amount of money at the end of each of the next 16 years, i.e., the first contribution will be made at the end of the year and the final contribution will be made at the time the oldest child enters college.
The money will be invested in securities that are certain to earn a return of 8 percent each year. The oldest child will begin college in 16 years and the second child will begin college in 18 years. The parents anticipate college costs of $25,000 a year (per child).
These costs must be paid at the end of each year. If each child takes four years to complete their college degrees, then how much money must the couple save each year?
What is the annual savings contribution? Please show detail of work so I can understand.