Question

What is the tuition in 2027 if the present tuition for college is $36,500 (in 2018) per year and the tuition inflation is 6.5% and general inflation is 2%?

A. $64,333.82

B. $54,242.47

C. $68,515.52

D. $43,620.88

Answer 1

Number of years from 2018 to 2027 = 9 ( As we already have figure for 2018, inflation will be counted from 2019 to 2027, which comes to 9 years)

Future Value

= Present Value x ( 1 + Rate of interest ) ^ Number of years

Where,

Present Value = $36,500

Rate of interest = 6.5% or 0.065 ( As this is only related to educational inflation and has no relation with general inflation)

Number of years = 9

So, Future Value

= $36,500 x ( 1.065 ^ 9 )

= $36,500 x 1.762570

= $ 64,333.82

So, as per above calculations, option A is the correct option