Time Value of Money: College and Retirement Funds
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This solution helps with question about time value of money.
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ANSWERS
Question 1
First, now much is the annual cost of college education 18 years from now
Inflation rate = 4%
Annual cost = $30,000
Number of years of college = 4
Number of years before college education starts = 18
Value of $30,000 18 years from now = $30,000*(1+4%)^18 = $60,774.50
Second, compute the total amount needed to finance a 4 year college education given that annual cost is $60,774.50
Total cost of a 4 year college course 18 years from now =$60,774.50*(1-(1/(1+4%)^4))/4% = ...
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