The current cost of tuition is $12,000 per year. The cost of tuition is rising a

Question

The current cost of tuition is $12,000 per year. The cost of tuition is rising at 5.00% per year. At this rate of inflation, how much will the cost of tuition be in 20 years?

$32,158

$12,348

$31,203

$12,600

$31,840

$12,726

Question 2 You need $18,000 in today's buying power 4 years from now. You can earn 3% APR in real terms on your investments. How much do you have to invest, in nominal terms (the same amount each year), starting next year for 2 years, to just meet your needs, if you expect inflation to be 4% per year?

$7,547

$3,998

$9,918

$8,860

Question 3

You need $60,000 in today's buying power, 5 years from now. You can earn 2% APR in real terms on your investments. How much must you invest (a different amount each year), starting next year for 4 years to just meet your needs, if you expect inflation to be 4% per year? The amount you invest should just maintain the real cash values.

Year 1 Year 2 Year 3 Year 4 $15,585 $16,208 $16,857 $17,531

Year 1 Year 2 Year 3 Year 4 $15,882 $16,517 $17,178 $17,865

Year 1 Year 2 Year 3 Year 4 $14,843 $15,437 $16,054 $16,696

Year 1 Year 2 Year 3 Year 4 $14,101 $14,665 $15,251 $15,861

Question 4 You estimate that prices will rise over the next 5 years. The price level in each year is shown in the table. If a typical grocery bill for one person is $3,528 today, what will it be in 5 Years?

Year 0 1 2 3 4 5

Price Level 138 144 150 156 162 169

$5,962

$5,843

$6,022

$4,321

$4,364

$4,234

Explanation / Answer

Question 1

Current cost of tuition (C) = $12,000

Percentage increase in the cost of tuition (r) = 5% or 0.05

Time period (n) = 20 years

Calculate the cost of tuition be in 20 years -

Cost of tuition in 20 years = C * (1+r)n

Cost of tuition in 20 years = $12,000 * (1+0.05)20

Cost of tuition in 20 years = $12,000 * (1.05)20

Cost of tuition in 20 years = $12,000 * 2.6533

Cost of tuition in 20 years = $31,839.6 or $31,840

Thus,

The cost of tuition will be $31,840 in 20 years.

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