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Richard Miller is saving for his son's college tuition. His son is currently 11 years old and will begin college in seven years. Richard has
Richard Miller is saving for his son's college tuition. His son is currently 11 years old and will begin college in seven years. Richard has an index fund investment worth $6,890 that is earning 9.5 percent annually. Total expenses at the University of Maryland, where his son says he plans to go, currently total $14,800 per year, but are expected to grow at roughly 6 percent each year. Richard plans to invest in a mutual fund that will earn 11 percent annually to make up the difference between the college expenses and his current savings. In total, Richard will make seven equal investments with the first starting today and the last being made a year before his son begins college. (a) What will be the present value of the four years of college expenses at the time that Richard's son starts college? Assume a discount rate of 5.5 percent. Assume that the tuition payments are made at the end of each year. (Round answer to 2 decimal places, e.g. 15.25. Do not round factor values.) Present value of tuition costs
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