Assignment
This assignment is directly related to the time value of money you learned in chapter 4 and chapter 5. Answer the following question:
Let's assume that you're preparing for your (future) child (or grandchild)'s college education. 20 years later from now, your (future) child will go to college. Currently you're considering two colleges for your (future) child (or grandchild). The following is the list of universities I assigned to each of you.
University 1
University 2
Yale University
Emory University
Estimate future costs of two colleges for your (future) child (or grandchild) and calculate needed annual savings for two colleges. Please specify your assumptions for computation of future costs and needed annual savings.
1. Please visit website of each university and find tuition and related information. Use out-of-state tuition information. Make sure that you include accurate information and citation source.
2. Using the tuition and related information in (1), you need to compound it at a reasonable "inflation" rate for education-related expenses for x number of years. I hope most of you are aware that educational inflation has been much higher than overall inflation in the economy, (You can find ‘tuition inflation' statistics from the internet. Use google and search for tuition inflation or education inflation) .
3. After you calculate this projected cost, your next job is to find the annual deposit needed to accomplish the goal - meeting the educational expenses. You must assume the investment rate of return (You can use ‘savings account rate as your investment rate of return, for example). Recall the equations or time value of money table we went over in class. You will choose the one that will give you the amount of the annual deposit.
4. What if you have $10,000 right now? How does this new information affect previous answer in (3)? What's new annual deposit amount you should make?
5. Let's assume that you just won the lottery. Rather than making equal annual payments, you decided to make one lump-sum deposit today to cover your child's future college expense needs. There will be no additional deposit. How much should you make one lump-sum deposit today to accumulate projected college education expense you need in 20 years?