Harry and Belinda Johnson

Throughout this book, we will present a continuing narrative about Harry and Belinda Johnson. Following is a brief description of the lives of this couple. Harry graduated with a bachelor’s degree in interior design last spring from a large Midwestern university near his hometown. Belinda has a degree in business finance from a university on the West Coast. Harry and Belinda both worked on their school’s student newspapers and met at a conference during their junior year in college. They were married last June and live in an apartment in Kansas City.

(a) Harry receives $3000 in interest income annually from a trust fund set up by his deceased father’s estate. The amount will never change. What will be the buying power of $3000 in ten years if inflation rises at 3 percent a year?

(b) Belinda and Harry have discussed starting a family but decided to wait for perhaps five years in order to get their careers off to a good start and organize their personal finances. They also know that having children is expensive. They figure that the extra expense of a child would be about $5000 annually until high school graduation. How much money will they likely cumulatively spend on a child over 18 years?