Present

value.

Prestigious University is offering a new admission and tuition payment plan for all alumni. On the birth of a child, parents can guarantee admission to Prestigious if they pay the first year's tuition. The university will pay an annual rate of return of 4.5% on the deposited tuition, and a full refund will be available if the child chooses another university. The tuition is expected to be $12,000 a year at Prestigious 18 years from now.

What would parents pay today if they just gave birth to a new baby and the child will attend college in

18 years?

How much is the required payment to secure admission for their child if the interest rate falls to

2.5%?