Question

If one year of college currently costs $20,000, how much will one year cost in 18 years for a newborn son assuming an inflation rate of 4%? Use appendix A-1

feppendix H- Future Value of a Known Lump Sum) 10% 1% 2% 3% 4% 8% 9% 11% 13% 15% 5% 6% 7% 12% 14% 16% 18% 17% 19 % 20% 1.1300 1 1.0100 1.0200 1,0300 1.0600 1.0800 10900 1.1100 1.0400 1.0500 1.0700 1.1000 1.1200 L1400 1,1500 1.1600 1.1700 1.1800 1,1900 12000 10201 1.1664 1,0404 1.1236 11449 11881 1.2321 1.2769 1.0609 1.0816 1,1025 1.2100 12544 1.2996 13225 13456 1.3689 13924 1.4161 1.4400 1.2597 3 1.0303 1.0612 1.1910 1.2250 12950 1.3310 13676 1,4429 1.4815 1.0927 11249 1.1576 1.4049 1,5209 15609 16016 16430 1.6852 17280 1.3605 18106 4 1,0824 1.1699 12155 12625 1.3108 1,4116 1.5181 1.6305 1.6890 13490 1.0406 1.1255 1.4641 15735 18339 1.9388 2.0053 2.0736 16851 5 12167 13382 1.4026 1,4693 1.5386 18424 2.1003 2.1924 1.0510 1.1041 1.1593 1276 1.6105 1.7623 19254 20114 2.2878 2.3864 2.4883 6 1.1262 12653 3401 1,4185 1.5007 15869 1.6771 2.0820 2.4364 1.0615 1.1941 1.3716 1.8704 1.9738 2.1950 23131 2.5652 2.6996 2.8398 2.9860 150% 16058 2.6600 7 1,1487 13159 1.4071 17138 2.3526 2.8262 10721 1.2299 1.8280 1.9487 2.0762 22107 2.5023 3.0012 3.1855 33793 3.5832 18509 8 1.0829 1.1717 13686 1.4775 15938 1.7182 3.2784 4.0214 12668 1.9926 2.1436 2.3045 2.4760 2.6584 2.8526 3.0590 3.5115 3.7589 4.2998 1.6895 1.1951 1304 1.4233 19990 2.5580 3.8030 44355 47854 1,0937 1.5513 18385 2.1719 2.7731 3.0040 3.2519 3.5179 4.1084 2.3579 5.1598 1,4802 17908 10 1.2190 1.6289 3.3946 5647 1.1046 1.3439 1.9672 2.1589 23674 28394 3.7072 4.0456 4.4114 4.8068 5.2338 6.1917 2.5937 3.1058 11 1.5395 18983 23316 5.1173 6.1759 1.1157 1.2434 1.3842 17103 2.1049 2.5804 3.1518 3.4785 3.8359 4.2262 4.6524 5,6240 67767 2.8531 7.4301 12 1.2682) 1.6010 2.0122 28127 7.2876 8.0642 1.1268 14258 17959 2.2522 25182 3.1384 3.4985 4.3345 48179 53503 59360 65801 3.8960 89161 48980 13 1.6651 2.1329 76087 8.5094 95964 1.1381 1.2936 14685 18856 24096 2.7196 3.0658 3.833 54924 6.1528 68858 10.6993 3.4523 4.3635 14 1.3195 15126 L7317 22609 2.5785 55348 10.1472 11.419 1.1495 13199 2.9372 33417 43104 48831 62613 7.3875 9.0075 17975 7.0757 12.8392 15 18009 20789 1,1610 1.3459 1.5580 2.3966 2.7590 3.1722 3.6425 4784 54716 62543 7.1379 9.2655 105387 11.9737 13.5895 15.4070 4.1772 8.1371 16 1.1726 2.5404 14.1290 161715 1.3728 16047 18730 2.1829 2.9522 3.4259 3.9703 53109 7.0673 8.1372 10.7480 12.330 45950 6.1304 93576 18.4884 68660 7.9861 12.4677 16.6722 19.2441 17 1,4002 19479 2.6928 1.1588 3.7000 43276 58951 9.2765 14.4265 22.1861 1.1843 16528 2.2920 50545 10.7613 18 28543 3.3799 3.9960 55599 76900 9.0243 22.9005 1.1961 1.4282 1024 2.0258 2.406 47171 6543 10.5752 14.4625 6.8790 13.6733 12.3755 266333 1.3631 25270 10.1974 16765 272516 19 1.2081 1.4568 17535 2.1068 3.0256 36165 43157 51417 61159 8.6128 12.0557 14.2318 23.2144 319480 19.7484 20 1.8061 12071 56044 8.0623 11.5231 324294 14859 46610 67275 96463 13.3435 16.3665 19.440 27.3930 383376 1.2202 2.1911 26533 23.1056 21 12324 50118 13.0211 1.5157 2.2788 33996 4.1406 61088 7400 89492 10 8038 15.6676 22.5745 32.323 38.5910 46.0051 18603 2.7860 18.8215 27.0336 66586 a1403 81421 36035 54365 99336 12.1003 147138 17 610 216447 26.1864 316293 45.9233 55 2061 22 1.2447 1.5460 19161 2.3699 23253 4.4304 11.063 16626 2464 18197 S.8715 13.5523 30.3762 546487 662414 23 12572 1.5N9 1.9736 1.0715 47405 7.2579 8.9543 20.366 248915 37006 45.007% 24 1.2697 65.0320 4.0489 6.3412 2.9111 98497 12.2392 15.1786 18.7881 53.1090 16084 20328 2.5633 50724 23.2122 28.6252 35 2364 43.2973 7948 3.2251 77.388 8.6231 10.8347 13.5855 170001 21.2305 26.4619 62.6686 25 1.2824 20938 24658 4.29196 6.8485 329190 408742 50.6578 953962 1.6406 3.3864 54274 2.1566 2.7725 92.0918 1144755 58074 73964 11.9182 15.0799 23.9905 37 8568 474141 59 2697 739490 26 1.2953 1.6734 45494 9.3992 19.0401 30.1666 3.5557 13.1 100 87.259 1.2069 22213 16.7386 21.3249 34.389 55.0004 .3455 109.5893 137.3706 27 130821 2.8834 4.8223 62139 7.9681 10.2451 27.1093 43.5353 3.7335 638004 81.1342 102 9666 130.4112 29987 19201 66488 8.6271 11.1671 14.4210 18.5799 23.8839 306335 39.2045 50.0656 164 8447 28 13213 1.7410 51117 2.2879 74.0085 94.9271 121.5005 155.1893 197.8136 20.6237 34.6158 446931 57.5755 3.1187 54184 7.1143 93173 12.1722 15.8631 267499 29 13345 17758 2.3566 4.1161 184.6753 237.3763 39.1159 143 3706 30 1.3478 5.7435 76123 22.8923 29.9599 50.9502 66.2118 858499 111.0647 18114 2.4273 3.2434 43219 10.0627 13.2677 17.4494 267 8635 378.7212 750.3783 1051,668 1469.772 3.2620 7.0400 10.2857 31.4094 45.2593 93.0510 132.7816 533.8687 40 2.2080 48010 21.7245 65.0009 188.8835 14889 14.9145 1670704 3927.357 117.3909 4507359 700.2330 2564215 5988 914 9100438 43839 7.1067 11.4674 18.4202 469016 74.3535 1845648 289.0022 1083 657 50 16446 2.6916 29.4570

Answer 1

Current 1 year cost of college = Present value = $20000

Inflation per year = rate = r = 4%, Years to college for new born = n = 18 years

We need to find Cost of 1 year college education in 18 years = Future value = ?

Future value = Present value x (1+r)ⁿ

where (1+r)ⁿ = Future value factor = Future value of known lumpsum

Now from Appendix A-1 we get for r = 4% and n=18, we Future value of factor = (1+4%)¹⁸ = 2.0258

Cost of 1 year college education in 18 years = Future value = Current 1 year cost of college x Future value factor = 20000 x 2.0258 = $40516

Hence Cost of 1 year college for newborn in 18 years = $40516