Suppose you borrow money from your parents for college tuition on January 1,2015.Your parents require four annual payments of $10,000 each,with the first payment due on January 1,2019.They are charging you 6% annual interest.What is the cost of the college tuition?

Question

Quizplus · Accepted Answer

To calculate the cost of the college tuition, we can use the present value formula for an annuity:

PV = PMT x [(1 - (1 + r/n)^-nt) / (r/n)]

Where:
PMT = Payment per period ($10,000)
r = Annual interest rate (6%)
n = Number of compounding periods per year (1)
t = Total number of periods (4)

PV = $10,000 x [(1 - (1 + 0.06/1)^-(1*4)) / (0.06/1)]
PV = $29,094.18

Therefore, the cost of the college tuition is $29,094.18, which is option B.

Suppose You Borrow Money from Your Parents for College Tuition