Today is 1 September, and this is the birthday of your two children, Tom and Lilly. Tom is 1 year old and Lily is 8 years old. Both children will start college when they turn 18. Tom will take 3 years to graduate and you will pay tuition of £15,000 per year at the beginning of each school year. Lilly will take 7 years to graduate and you will pay tuition of £10,000 per year, payable at the beginning of each school year. The interest rate is 8%. a) What is the present value of the tuition fees that you will have to pay for Tom? b) What is the present value of the tuition fees that you will have to pay for Lilly? c) Instead, you prefer to pay a constant amount of money at the beginning of each year, starting next year until the year of the last tuition bill, to cover the present value of the totality of the tuition fees. How much should you be paying each year?
Today is 1 September, and this is the birthday of your two children, Tom and Lilly. Tom is 1 year old and Lily is 8 years old.
Both children will start college when they turn 18. Tom will take 3 years to graduate and you will pay tuition of £15,000 per year at the beginning of each school year. Lilly will take 7 years to graduate and you will pay tuition of £10,000 per year, payable at the beginning of each school year. The interest rate is 8%.
a) What is the present value of the tuition fees that you will have to pay for Tom?
b) What is the present value of the tuition fees that you will have to pay for Lilly?
c) Instead, you prefer to pay a constant amount of money at the beginning of each year, starting next year until the year of the last tuition bill, to cover the present value of the totality of the tuition fees. How much should you be paying each year?
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