Take tuition stabilization plan-taking cheaper alternative

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Reference no: EM13847598

1. How much would you pay today for an investment that provides you $100 each year for the next five years and $1,100 six years from now if the interest rate is 2.8%?

Calculate your answer to the nearest penny.

Do not include the dollar sign, just enter the number.

2. Your sending your daughter to a prestigious private college starting next year. She will attend for four years. The current cost for one year is $60,000, but is expected to rise 2% per year over the next 10 years. The school has a “tuition stabilization” plan whereby you can pay for the entire four years by writing a single check for $240,000 when your daughter begins college. Otherwise, you simply pay each year’s tuition as you go. If your investments earn 6% per year, should you pay as you go or take the tuition stabilization plan? How much do you save in present value terms by taking the cheaper alternative?

Reference no: EM13847598

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