Question
2. Suppose that a young couple has just had their first baby and they wish to ensure that enough money will be available to pay
2. Suppose that a young couple has just had their first baby and they wish to ensure that enough money will be available to pay for their child's college education. Currently, college tuition, books, fees, and other costs, average $12,500 per year. On average, tuition and other costs have historically increased at a rate of 4% per year. Assuming that college costs continue to increase an average of 4% per year during her college years,, that she receives a lump sum from her parents at the age of 18 and that she invests all her college savings in an account paying 7% interest, then the amount of money she will need to have available at age 18 to pay for all four years of her undergraduate education is closest to: A) $97,110 B) $107,532 C) $101,291 D) $50,000 E) None of the above 3. Your son is about to start kindergarten in a private school. Currently, the tuition is $12,000 per year, payable at the start of the school year. You expect annual tuition increases to average 6% per year over the next 13 years. Assuming that your son remains in this private school through high school and that your current interest rate is 6%, then the present value of your son's private school education is closest to: A) $106,230 B) $156,000 C) $137,900 D) This problem cannot be solved. E) None of the above
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