The university your daughter wants to go in the fall of 2107 requested that you pay the tuition for all 4 years upfront when she starts school. The current tuition bill is $50,000. You expect the inflation rate to average 2% per year, and that the university pays a 4 % interest per year for the four year period.
What is the present worth of your payment?

Question

Quizplus · Accepted Answer

A =? f = 2% i = 4% n = 4 years. Annual cost = $50,000 i? = (i - f) / (1 + f) = (0.04 - 0.02) / (1 + 0.02) = 0.0196 = 1.96%. PW of all payments = Annual cost (P/A, i?, n) = $50,000 [{1 - (1.0196)^-⁴}/ 0.0196] = 50,000 (3.8114) = $190,571.38

The University Your Daughter Wants to Go in the Fall