Your oldest daughter is about to start kindergarten at a private school. Tuition is $10 000 per

QUESTION

Your oldest daughter is about to start kindergarten at a private school. Tuition is $10,000 per year, payable at the beginning of the school year. You expect to keep your daughter in private school through high school. You expect tuition to increase at a rate of 5% per year over the 13 years of her schooling. What is the present value of the tuition payments if the interest rate is 5% per year? How much would you need to have in the bank now to fund all 13 years of tuition?
Solution: PV (GA) = 10,000 (1.05)/1.05 + 10,000 (1.05)^2/1.05^2 + . + 10,000 (1.05)^12/1.05^12 PV (GA) = 10,000 + 10,000 + 10,000 +

+ 10,000 PV (GA) = 10,000 x 12 PV (GA) = 120,000 Adding the initial tuition payment gives: 120, 000 + 10, 000 = 130,000

ANSWER:

CLICK REQUEST FOR  AN EXPERT SOLUTION