Question

In: Finance

Your only child will go to college 10 years from now. Your salary is $80,000 a...

Your only child will go to college 10 years from now. Your salary is $80,000 a year, and is expected to rise with inflation, which is about 3% annually. Tuition is currently about $40,000 a year, but growing by 5% yearly. What percentage of your salary would go to pay for the first year of your child's college education?

(Please work this out thoroughly, need to understand the work process)

Solutions

Expert Solution

The salary after 10 years will be = 80000 x 1.03^10 = 107513.31. Similarly, the college fees after 10 years will be = 40000 x 1.05^10 = 65155.78. Hence, the percentage will be = 65155.78/107513.31 = 60.60%


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