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our oldest daughter is about to start kindergarten at a private school. Tuition is $10,000 per year, payable at the beginning of the school year. You expect to keep your daughter in private school through high school. You expect tuition to increase at a rate of 5% per year over the 13 years of her schooling. What is the present value of the tuition payments if the interest rate is 5% per year

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The present value of the tuition payments if the interest rate is 5% per year will be $130,000.

What is Present value?

Present value is used to arrive a sum that need to be invested to reach a particular future value.

Since the inflation rate is equal to discount rate, then, the P.V. will equal to the sum of the Tuition fee for 13 years.

Present value = Tuition fee * Number of years

Present value = $10,000 * 13 years

Present value = $130,000

In conclusion, the present value of the tuition payments if the interest rate is 5% per year will be $130,000.

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