Kim's daughter is about to start kindergarten in a private school. Currently, the tuition is $20,000 per year, payable at the start of the school year (t=0). Kim expects tuition increases, on average, 5% per year over the next 13 years (t=1 to t=13). This means that the private education has 14 years, and the last payment of tuition fee is due at the beginning of year 14 (t=13). Kim has a saving account which is dedicated to paying his daughter's tuition. How much money at least should the saving account have today (t=0) so that the 14-year tuition can be fully paid using money from the saving account only? Assume that Kim's daughter remains in this private school for the entire 14-year private education and that Kim's current annual interest rate is 6%.
Kim's daughter is about to start kindergarten in a private school. Currently, the tuition is $20,000 per year, payable at the start of the school year (t=0). Kim expects tuition increases, on average, 5% per year over the next 13 years (t=1 to t=13). This means that the private education has 14 years, and the last payment of tuition fee is due at the beginning of year 14 (t=13). Kim has a saving account which is dedicated to paying his daughter's tuition. How much money at least should the saving account have today (t=0) so that the 14-year tuition can be fully paid using money from the saving account only? Assume that Kim's daughter remains in this private school for the entire 14-year private education and that Kim's current annual interest rate is 6%.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Kim's daughter is about to start kindergarten in a private school. Currently, the tuition is
$20,000 per year, payable at the start of the school year (t=0). Kim expects tuition increases,
on average, 5% per year over the next 13 years (t=1 to t=13). This means that the private
education has 14 years, and the last payment of tuition fee is due at the beginning of year 14
(t=13). Kim has a saving account which is dedicated to paying his daughter's tuition. How
much money at least should the saving account have today (t=0) so that the 14-year tuition can
be fully paid using money from the saving account only? Assume that Kim's daughter remains
in this private school for the entire 14-year private education and that Kim's current annual
interest rate is 6%.
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