Your Uncle Paulie comes to you seeking advice on how to pay for college tuition for...

Your Uncle Paulie comes to you seeking advice on how to pay for college tuition for his two boys, Ivan who is 2 and Martin who is 6. He is set on Martin going to his alma mater, where tuition is currently $40,000. He wants Ivan to attend a local public university for 2 years, travel abroad at Ivan’s expense, and then finish his last two years at the local university. Tuition is currently $30,000. Because of the difference in cost, Uncle Paulie will cover 3 years for Martin and 4 years of tuition for Ivan. He anticipates school costs will rise 4% annually and feels he can achieve 15% annually. How much should he set aside and invest today in order to meet his funding goals?

Expert Solution

Year	Tuition Fees	Discounting Factor [1/{1.15^Year}]	PV (Total Tuition Fees* Discounting Factor)
12	40000	*(1.04^12)=	64041.29	0.18690715	11969.77477
13	64041	*(1.04)=	66602.94	0.162527957	10824.83979
14	66603	*(1.04)=	69267.06	0.141328658	9789.420336
15				0.122894485	0
16	30000	*(1.04^16)=	56189.44	0.10686477	6004.671287
17	56189	*(1.04)=	58437.01	0.092925887	5430.311425
18	58437	*(1.04)=	60774.5	0.080805119	4910.890332
19	60774	*(1.04)=	63205.48	0.070265321	4441.152996
				Sum of PVs =	53371.06094

Sum to be kept aside today = $53371.06

jeff jeffy answered 2 years ago

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