A father wants to start setting aside money for his daughter's college fees, who is eight years old. In ten years, the daughter will start college. She will need to pay for her college costs for four years with an annual sum of $20,000 in current (constant) dollars. Assume that these tuition payments will be sent in at the start of every academic year. (At the conclusion of ten years, the first payment is made.) The interest rate on the savings account will be 8% compounded quarterly (market interest rate) during this time, whereas the expected general inflation rate for the future is 5% annually. How much money would the daughter need to borrow in order to pay for her freshman year if the father decides to save only $500 (real money) per quarter? (a) $1,920 (b) $2,114 (c) $2,210 (d) $2,377

A father wants to start setting aside money for his daughter's college fees, who is eight years old. In ten years, the daughter will start college. She will need to pay for her college costs for four years with an annual sum of $20,000 in current (constant) dollars. Assume that these tuition payments will be sent in at the start of every academic year. (At the conclusion of ten years, the first payment is made.) The interest rate on the savings account will be 8% compounded quarterly (market interest rate) during this time, whereas the expected general inflation rate for the future is 5% annually. How much money would the daughter need to borrow in order to pay for her freshman year if the father decides to save only $500 (real money) per quarter? (a) $1,920 (b) $2,114 (c) $2,210 (d) $2,377

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.7P

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