Your sister will start college exactly 1 year from now and she wants to join you...

Your sister will start college exactly 1 year from now and she wants to join you at Marquette University. Marquette University offers a couple of payment plans for the tuition fee.

Flexible Plan: Pay once a year but the tuition will increase at 5% per year (which is much lower than other schools). The first payment due at the very first day of school. This year, the tuition is $30,000.

Convenient Plan: Lock in by paying a lump sum of $95,000 today for all four years of tuition fees

Your parents are looking at these payment options and of course come to you for an advice because you are doing so well in your finance class. Your parents said all of their money is in their investment account which makes 15% per year for the next 10 years.

Which plan should your parents choose and how much will they save? (Hint: this a two step problem.)

A. The Flexible Plan is better. Your parents will save $36,851.84

B. The Convenient Plan is better. Your parents will save $140.50

C. The Flexible Plan is better. You parents will save $26,925.59

D. The Convenient Plan is better. Your parents will save $1,084.56.

Solutions

Expert Solution

jeff jeffy answered 2 years ago

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