The current cost of graduate school tuition is $19,203 per year. The cost of tuition is...

The current cost of graduate school tuition is $19,203 per year. The cost of tuition is rising at 6% per year. You plan to attend graduate school for 3 years starting 4 years from now. How much do you have to invest today if your savings account earns 3.95% APR compounded annually to just fund your tuition?

Expert Solution

Amount required after 4 years = Present value of all tuition fees

= 19203*(1.06)^4+19203*(1.06)^5/1.0395 + 19203*(1.06)^6/(1.0395)^2

= $74173.77

Hence, amount required to be invested today = Present value of amount required in future

= 74173.77/(1.0395)^4

= $63,526.13

Note: It has been assumed that the tuition payments will be made at the beginning of each year

jeff jeffy answered 2 years ago

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