We’re going to make some slightly unrealistic assumptions but it will make life a bit simpler. Let’s rewind your life and pretend that it is one year before you start at OSU and that you’ll graduate in four years. Let’s say that you have the option to either pay tuition annually at $11,000 per year or you can pay $40,000 that covers all years. Tuition is either due on the first day of the year or your first day on campus if you pay in a lump sum. Further, suppose that you have sufficient cash that is sitting in an investment account earning 8%.

 Which option should you choose? Also, what is the breakeven rate on your investment account where you switch from preferring the lump sum payment to the annual tuition (or vice versa).

Step 1: Set up both timelines

Step 2: Calculate the present value of each option.

Step 3: Calculate the breakeven rate (hint: create a cell that calculates the difference in the present value of each option and then use the solver to find a solution to the rate that sets that difference to zero).

Activity 2:

Once again, we’re going to make some slightly unrealistic assumptions but it will make life a bit simpler. Suppose that you’re 17 and in a year, straight out of high school, you have a job lined up as a union welder that will pay $40,000. You’d work that job for 43 years and retire. Let’s also say that you have the opportunity to go to OSU where you’d pay $11,000 for four years (while having zero income) and start a job in banking. You don’t know what your starting salary will be though. Assume that the salaries of both jobs will increase by 3% per year.

What does your starting salary need to be to make it financially worthwhile to go to college?