Question

Suppose you were 100% certain that your future child, assumed to be born in 2029, will attend Simmons University for a four-year education when she is 18 years old (enrolling in fall 2047).

The 2020-2021 tuition, room, board, and fees to attend Simmons are $60,180.

Required (Show/explain your computations):

1. If tuition were to increase at a rate of 3% per year between now and when your daughter enrolls (fall 2047), what will be the estimated tuition, room, board, and fees for your daughter’s first year of college?

2. Assume that each of the four years of your daughter’s education will cost the same constant amount you computed in part (1). What is the total amount you would have to spend (assuming no scholarships or grants) to pay for the entire 4-year education?

3. Assume that you can earn 5% on money saved for your daughter’s education. Suppose Simmons University offered you the following deal: Pay $134,000 today, and your daughter’s full 4-year education will be covered when she enrolls. Which is financially more advantageous to you – accepting this offer, or paying the full amount (the amount you computed in part (2)) in fall of 2047?

Answer 1