Question: Prestigious University is offering a new admission and tuition payment
Prestigious University is offering a new admission and tuition payment plan for all alumni. On the birth of a child, parents can guarantee admission to Prestigious University if they pay the first year’s tuition. The university will pay an annual rate of return of 4.5% on the deposited tuition, and a full refund will be available if the child chooses another university. The tuition is $12,000 per year at Prestigious University and is frozen at that level for the next eighteen years. What would parents pay today if they just gave birth to a new baby and the child will attend college in eighteen years? How much is the required payment to secure admission for their child if the interest rate falls to 2.5%?
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