Your son is about to start kindergarten in a private school. currently, the tuition is $11,000 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 7%, then the present value of your son's private school education is closest to:

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batolisis batolisis · Answer 1 · 2022-06-24T19:02:14+02:00

The present value of your son's private school education is :

≈ $ 9,735.98

First step : Determine the future value of the tuition

Tuition( PV ) = $11,000 , r = 6% , n = 13

FV = PV ( 1 + r )ⁿ --- ( 1 )

Back to equation ( 1 )

FV = 11,000 ( 1 + 0.06 )¹³

= 11,000 (1.06)¹³ = $23462.21

Last step : Determine the present value of your son's private school education

PV = FV ( 1 / ( 1 + r )ⁿ ) ------- ( 2 )

where : FV = $23462.21, r = 7% , n = 13 years

PV = 23462.21 ( 1 / ( 1.07 )¹³

= 23462.21 * 0.41496

= $ 9,735.98

Hence we can conclude that The present value of your son's private school education is :≈ $ 9,735.98

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