The current cost of graduate school tuition is $19,771 per year. The cost of tuition is...

The current cost of graduate school tuition is $19,771 per year. The cost of tuition is rising at 7% per year. You plan to attend graduate school for 3 years starting 2 years from now. How much do you have to invest today if your savings account earns 4.74% APR compounded annually to just fund your tuition?

Expert Solution

Assumption: Tuition Fees will be payable at the BEGINNING of each year

Year			Tuition Fees	Discounting Factor [1/{1.0474^year}]	PV as on Today [Total Tuition Fees* Discounting Factor]
2	19771	*(1.07^2)=	22635.8179	0.911538174	20633.41211
3	22635.8179	*(1.07)=	24220.32515	0.870286589	21078.62417
4	24220.32515	*(1.07)=	25915.74791	0.830901842	21533.44268
				Sum of PVs =	63245.47895

Therefore, Amount to be Invested Today = $63245.48

jeff jeffy answered 2 years ago

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