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In: Economics

create a cash flow analysis and diagram for a government paying for student's tuition and another...

create a cash flow analysis and diagram for a government paying for student's tuition and another cash flow analysis and diagram for a student paying their own tuition (any country). Thanks

Solutions

Expert Solution

Assume rate of interest = 10% and government offers 2,000 per year for a 4 year degree

Present value is calculated as: [Payment / (1 + Rate of Interest)^Year]

Year Government Payment Present Value
1                         2,000.00 1,818.18
2                         2,000.00 1,652.89
3                         2,000.00 1,502.63
4                         2,000.00 1,366.03
6,339.73

Student repays the loan in 6 years by paying $X each year from year 5 onwards.

Year Repayment Present Value
5 X            0.62X
6 X            0.56X
7 X            0.51X
8 X          0.47X
9 X          0.42X
10 X          0.39X
         2.97X

Present value of both amount should be same: 2.97X = 6,339.73

X = 2,131.22

Rahul Sunny answered 2 years ago
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