Question 4 You are making plans to further your studies in the UK for 2 years in

Question

Question 4 You are making plans to further your studies in the UK for 2 years in the next 5 years. You investigated and discovered the following costs: Item Cost TTD (for the 2-yr period) 16,000 Accommodation 72,000 36,500 24,000 50,000 Entertainment 10,000 Meals Transport Tuition Given the current bank interest rate of 8% how much will you have to save (in the bank) now to realise this goa to consider that will affect how much you save? 1? Concerning your future financial goal what other economic factor will you have

Explanation / Answer

Total cost required after 2 years = 16,000 + 72,000 + 36,500 + 24,000 + 50,000 + 10,000 = 208,500

Required current saving = 208,500 x P/F(8%, 2) = 208,500 / (1.08)2 = 208,500 / 1.1664 = 178,755.14

The other factors to consider are:

- Inflation rate. If I make an inflation-adjusted estimate then I can ensure equal purchasing power of current savings two years hence.

- Change in cost estimates. It is likely and possible that some cost components will change after two years, for example flight, transport and meals are likely to cost more in future.

- Change in bank interest rate. If interest rate increases (decreases) compared to current 8%, I will require to save less (more) at present.

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