Question

12. They are curious to find out if college costs $90,000 per year when their child gets into college in 19 years, how much is the total cost of a college education (that lasts for 4 years) in today's dollars if the cost of money is 8%? Assume you pay the tuitions at the beginning of each year and the annual tuition cost will grow at a 6% anntual rate. [Hint: first compute the beginning value (at 19h year) of the tuition payment stream over the 4 year period]

Answer 1

age		tuition fee	total cost
19	year0	90000.0000	122444.00640
20	year1	95400.0000	120176.52480
21	year2	101124.0000	117951.03360
22	year3	107191.4400	115766.75520
			476338.32000
	Tution fee will grow @6% = (1+i)n, where i= growth rate from year1 onwards, first payment is now so no growth is to be applied
	n =number of corresponding years 0, 1,2,3
	the time now is denoted as year0,
	Total cost is including cost @8%, this may opportunity cost or if they arranging loan its cost
	the first fee is paying now, si interest will accrue from now, So this will grow @8%, i=8%, n = 4,3,2,1

So formula for compouding is same but i = 8%, n = for first year will be 4, because the interest will sccrue from now

Please rate the answer maximum if you get the answer and satisfied. If you remains any doubts on this answer, please leave a comment and it will be cleared.

Thank you,…