Question

Your son is about to start kindergarten in a private school. Currently, the tuition is $12,000 per year, payable at the start of the school year. You expect annual tuition increases to average 6% per year over the next 13 years. Assuming that your son remains in this private school through high school and that your current interest rate is 6%, then the present value of your son's private school education is closest to: $106,230 $137,900 $156,000 This problem cannot be solved.

Answer 1

Answer: Option(C) is correct.

Explanation:

Given that,

Tuition = $12,000 per year

Expect that annual tuition increases to average 6% per year over the next 13 years

Current interest rate = 6%

Present value of my son's private education  = 15000 + $12000 \times (\frac{1.06}{1.06} )^{1} + ....................+ 12000 \times (\frac{1.06}{1.06} )^{12}$

= 12000 × 13

= $156,000

∴  The present value of your son's private school education is closest to $156,000.