Please present the answer neatly. Thanks Question 4(b) Assume that it costs $15,

Question

Please present the answer neatly. Thanks

Question 4(b) Assume that it costs $15,000 per academic year now (in 2018 year dollars) for tuition. a) If inflation averages 3% per year, and tuition is expected to increase at the rate of inflation, what is the cost per year of a four-year college education for a student who will be starting college in Fall 2028 (i.e. 10 years from now). Assume tuition for the academic year is paid in full at the start of each academic year. (10 points) b) Starting in September 2018 (10 years before starting college), how much should be saved each month if the savings account earns 6% per year compounded monthly (0.5% per month) if the account is to have sufficient funds by the end of August 2028 to cover the cost of 4 years of tuition. Draw a cash flow diagram to use with your analysis. (15 points).

Explanation / Answer

1. Assuming the average inflation is 3 % per year, the tuition fees after 10 years will be : = 15,000 x ( 1+.03) ^ 10 20158.7 : = 20160 USD Approx Tuition fees at the beginning of 2018 year will ebe 20160 ( Approx )   Assuming fees is paid at the beginning of each year A = PMT × (((1 + r/n)^(nt) - 1) ÷ (r/n)) × (1+r/n) : = 20160 * ((1.03) ^4 -1))/.06*1.03 86872.2 USD is the total tuition fees paid for 4 years assuming the fees is paid a the beginning of each year and the inflation every year is 3 % 2. A = PMT × (((1 + r/n)^(nt) - 1) ÷ (r/n)) × (1+r/n) A = 86872, r = 6/100 = .06, n = 12, t= 10 years : 86872 = PMT x ((1+.005)^(120)-1)/.005*1.005 : 86872 = PMT X 164.6987 0.005 therefore PMT = 86872/ 164.6987 = 527 $

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