What is the present value of the cost of college education for 4 children ages 1,...

What is the present value of the cost of college education for 4 children ages 1, 3, 5, and 7. The current cost of college is $25,000. The children will begin college at age 18 and be in college for 4 years. Education inflation is expected to be 6% and the parents portfolio rate of return is 8%.

Solutions

Expert Solution

Child aged 1 year will go to college through 17 to 20 years

Similarly, other 3 children will go through, 15 to 18 years, 13 to 16 years, 11 to 14 years

Period	Discounting Factor [1/(1.08^period)]	Inflation Adjusted College Fees [(Previous Years Fees)*(1+0.06)]	Number of Children going to College	Total Fees [College Fees*Number of Children]	PV of Total Fees [Total Fees*Discounting Factor]
1	0.925925926	25000
2	0.85733882	26500
3	0.793832241	28090
4	0.735029853	29775.4
5	0.680583197	31561.924
6	0.630169627	33455.63944
7	0.583490395	35462.97781
8	0.540268885	37590.75647
9	0.500248967	39846.20186
10	0.463193488	42236.97398
11	0.428882859	44771.19241	1	44771.19241	19201.59702
12	0.397113759	47457.46396	1	47457.46396	18846.01189
13	0.367697925	50304.9118	2	100609.8236	36994.02334
14	0.340461041	53323.2065	2	106646.413	36308.94883
15	0.315241705	56522.59889	2	113045.1978	35636.56089
16	0.291890468	59913.95483	2	119827.9097	34976.62458
17	0.270268951	63508.79212	2	127017.5842	34328.90931
18	0.250249029	67319.31964	2	134638.6393	33693.18876
19	0.231712064	71358.47882	1	71358.47882	16534.62041
20	0.214548207	75639.98755	1	75639.98755	16228.42374
				PV of Total Fees = Sum of PVs	282748.9088 = $282748.91

jeff jeffy answered 1 year ago

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