This essay focuses on savings plan for the big event.having a healthy baby at the local hospital is $6500 after
all insurance payments
Bob and Carol are planning for the birth of their first child exactly four years from
today. They are now ready to start their savings plan for the big event.
at the local hospital is $6500 after
all insurance payments. Pre-natal care for the immediate 12-month period prior to
having the baby amounts to $2000 out-of-pocket costs. Carol’s best friend is
planning a baby shower, so only a crib, a baby carrier, and other miscellaneous
items will be needed, which all cost $1,200 today. However, these items will be
purchased and paid for the day of the child’s birth, and the items are expected to
increase in costs by 10% each year over the next four years due to inflation.
Bob and Carol now have $500 in cash that they plan to put in the bank in order to
cover the all the new costs.
the end of year two, as a present to Bob and Carol for baby expenses.
Currently, Bob and Carol can earn 6% compounded annually on this money. In
order to be able to pay cash for all these expenses on the day the baby is born,
how much will Bob and Carol have to save, assuming the baby is born exactly
four years from today
1. Draw the timeline that illustrates the timing of all the events of the situation
2. How much will Bob and Carol need to have in the bank on the day the baby
is born in order to achieve all their goals?
3. What amount needs to be saved at the end of each year in order for Bob
and Carol to reach their financial goals?
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