Reference no: EM133074524

Question - Manoj has just received the good news that he has become the father of an adorable baby girl. He starts dreaming about his daughter is going to be when she grows up. He would like her to go to the engineering college, which she would join after 17 years. Currently, an engineering education costs 50,000 per year. Education costs are growing at 8% per annum. Th entire cost for the first year has to be paid at the beginning itself. The cost of the subsequent years are paid at the beginning of each year and each year the costs increase by 8%. It takes 4 years to get an engineering degree.

Required -

a) What will be the cost of the 1st year of engineering college?

b) What is the present value of the 4 years of education if the opportunity cost is 11%?

c) Manoj's current annual income is 2,00,000. His income grows at an annual rate of 8%. He plans to save a fixed proportion of his income each year for 17 years to accumulate the amount of money required for his daughter's engineering course. His savings are invested to earn a stated annual rate of 11%. What proportion of his income should he save each?