Question

The current cost of graduate school tuition is $18,093 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 3.90% APR compounded annually to just fund your tuition?

Answer 1

			Amount of money required each year
			Years	Workings	Amount with 7% inflation rate
			Year 1	18093	$                            18,093.0000	Not required
			Year 2	18093*1.07	$                            19,359.5100	Not required
			Year 3	19359*1.07	$                           20,714.6757	To be paid at the beginning of year 1
			Year 4	20714.67*1.07	$                           22,164.7030	To be paid at the beginning of year 2
			Year 5	22164.68*1.07	$                           23,716.2322	To be paid at the beginning of year 3
			Total money required		$                           66,595.6109
Assuming tution fee is paid at the beginning of each year		Payment schedule
Year	Tution fee to be paid	PV Factor @ 3.9%	Discounted cash flow		Year	Opening balance	Interest @ 3.9%	Amount paid for tuition	Closing balance
1	$                               -	0.96246	$                               -
2	$                 20,714.68	0.92634	$                 19,188.77		1	$           59,300.95	$         2,312.74	$                                   -	$      61,613.69
3	$                 22,164.70	0.89157	$                 19,761.29	2	$           61,613.69	$         2,402.93	$                     20,714.68	$      43,301.94
4	$                 23,716.23	0.85810	$                 20,350.89	3	$           43,301.94	$         1,688.78	$                     22,164.70	$      22,826.02
5	$                               -	0.82589	$                               -		4	$           22,826.02	$            890.21	$                     23,716.23	$                    -
Present value of investment required	$                     59,301		5	$                        -	$                     -	$                                   -	$                    -

For better clarity the image of the above is given below: