Question

Quilici Family: Greg and Debra Quilici own a four bedroom home in an affluent neighborhood just north of San Francisco, California. Greg is a partner in the family owned commercial painting business. The family is Composed of Greg (father), Debra (mother), and 5 year old son Brady.Greg is a partner in the family owned commercial painting business.Debra is a housewife

After visiting Lawrence Krause, a family financial planner, Greg and Debra became concerned of their spending, and that they are not putting enough money for their son’s future education needs as well as their own retirementThey have a Koegh plan (retirement plan for self-employed individuals and small businesses in the US), but they did not account for Brady’s education.

Greg earns $95,000 per year, Greg is an alumnus of Stanford University (Tuition = $40,000 per year). Debra graduated from University of North Carolina at Chapel Hill (Tuition = $4,500 per year). The couple wants to send Brady to either school when he turns 18, with a slight preference towards Stanford. The problem, however, is that with the rate at which tuition is increasing the Quilicis are not sure they can raise enough money.

They expect the following things to happen.

• Tuition fees is expected to increase at an annual rate of 6%
• Living expenses are estimated to be $7000 per year for both schools (expecting to grow 3.5% per year)
• The couple can deposit their money into a growth oriented mutual fund at Neuberger and Berman Management, Inc. (historically earning 12% per annum)

The couple wishes to have a pre-determined monthly amount automatically paid from their bank account. When Brady starts college they will slowly liquidate the account by making an annual payment to Brady to cover tuition and living expenses at the beginning of each year for the four years he will be in college.

From the Case above

1. Identify the variables for each university (Tution Fees, Living Expenses, Interest rate, No of years)

2. How much will the tuition and living expenses be per year when Brady is ready to attend Stanford University?

3. How much will the tuition and living expenses be per year when Brady is ready to attend University of North Carolina at Chapel Hill?

4. Once Brady starts college what will his total expenses (future) be in each of his four years for Stanford University?.

5. Once Brady starts college what will his total expenses (future) be in each of his four years for University of North Carolina at Chapel Hill?.

6. Based on your analysis which university shoulf Greg and Deba choose for their son?

Answer 1

a) Identify the variables for each university (Tution Fees, Living Expenses, Interest rate, No of years):-

Please see the below details

Standford Tution Fee at present : $40000

Living Expense ( Standford) : $ 7000

North Carolina at Chapel Hill Tution Fees : $4500

Living Expense ( North Carolina) : $ 7000

Number of Years : present age is 5 when he become 18 then year should be 18

a)How much will the tuition and living expenses be per year when Brady is ready to attend Stanford University:-

Based on the below table if Brady study in Stanford parents has to pay $ 96,264.82 per year

Tution fees of $ 85,317.13 and Living Expenses of $ 10,947.69

a)How much will the tuition and living expenses be per year when Brady is ready to attend University of North Carolina at Chapel Hill:-

Based on the below table if brady study in North Carolina, parent has to pay $ 20,545.87 per year

Tution Fees of $ 9598.18 and Living expense of $10,947.69

a)Once Brady starts college what will his total expenses (future) be in each of his four years for Stanford University:-

Total cost would be $385,059.29 in Standford (Yearly cost *4) Based on the above table.

a)Once Brady starts college what will his total expenses (future) be in each of his four years for University of North Carolina at Chapel Hill:-

Total cost would be ​​​​​​​$82,183.48

a)

When we compare both colleages it is risky to study in Stanford as compared with North Carolina at Chapel Hill

Please see the below table to see the comparison

To identify future value we can use formula :

F = Present Value (1 + Rate of Change) ^ Number of Years

Number of years = 18 years - 5 Years

Item	Stanford University		North Carolina at Chapel Hil
	Age 5	Age 18	Age 5	Age 18
Tution Fees	$ 40,000.00	$    85,317.13	$                                4,500.00	$    9,598.18
Living Expenses	$    7,000.00	$    10,947.69	$                                7,000.00	$ 10,947.69
Four Year Cost of Tution Fees		$ 341,268.52		$ 38,392.71
Four Year cost of Living Expenses		$    43,790.77		$ 43,790.77
Total Cost		$ 385,059.29		$ 82,183.48
Savings If studied in Carolina At chapel Hill					$ 302,875.81

Though Mutual fund investment gives 12% expected return it is risky to invest money in those funds, as we aware that high return there is high risk.

But if the parent ready to take risk here is the option, please see the below table to view.

Year	Amount	Amount Saved	Invested in Mutual Fund	50% Money into Retirement, Bank Deposit and Household Expense
1	$ 95,000.00	$        47,500.00	$                           207,265.92	$                                                                   47,500.00
2		$        47,500.00	$                           185,058.86	$                                                                   47,500.00
3		$        47,500.00	$                           147,527.79	$                                                                   47,500.00
4		$        47,500.00	$                           131,721.24	$                                                                   47,500.00
5		$        47,500.00	$                           117,608.25	$                                                                   47,500.00
6		$        47,500.00	$                           105,007.37	$                                                                   47,500.00
7		$        47,500.00	$                             93,756.58	$                                                                   47,500.00
8		$        47,500.00	$                             83,711.23	$                                                                   47,500.00
9		$        47,500.00	$                             74,742.17	$                                                                   47,500.00
10		$        47,500.00	$                             66,734.08	$                                                                   47,500.00
11		$        47,500.00	$                             59,584.00	$                                                                   47,500.00
12		$        47,500.00	$                             53,200.00	$                                                                   47,500.00
13		$        47,500.00	$                             47,500.00	$                                                                   47,500.00
			$                       1,373,417.49