How much are the saving in fv terms with the decision

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The Johnson family is worried about their ability to pay college tuition for their daughter Chloe. Tuition rates are currently $11,000 per year at the state college and have been increasing at a rate of 7.5% annually. Chloe will begin college in 6 years. The Johnson's have $11,000 set aside now in a college plan that will earn 5.5% per year. They recently heard about a plan to prepay tuition at current rates, i.e., paying $11,000 per year of college.

Problem 1: Should they prepay Chloe's first year now or keep the money invested and pay the tuition 6 years from now? How much are they saving in FV terms with this decision?

Reference no: EM132998975

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