Question

A full-time student used to earn $25,000 in his previous job but now attend a 4-year college. He paid a total $9,000 in tuition and fees per year. Every year, he also took a student loan of $5,000 at an annual interest rate of 3% per year and withdrew $6,000 in an investment fund that earned 5% in interest payment. His real cost of attending school in a year is about _____.

A) $34,450

B) $35,148

C) $34,230

D) $34,420

Answer 1

A. $34,500

Explanation:

The real cost of attending school would include the opportunity costs as well as the explicit costs.

Here, the explicit costs per year = $9,000

The yearly opportunity cost of leaving the job = $25,000

The annual interest of the student loan = 3% of $5,000 = $5,000 * 3/100 = $150

The opportunity costs in terms of interest lost in the invetsment fund = 5% of $6,000 = 5/100 * $6,000 = $300

The real cost of attending the school = $9,000 + $25,000 + $150 + $300 = $34,450.