Hi There,

I got this question in a test wrong.

Suppose that a young couple has just had their first baby and they wish to ensure that enough money will be available to pay for their child's university education. Currently, tuition, books, fees, and other costs average $12 500 per year. On average, tuition and other costs have historically increased at a rate of 4% per year.

Assuming that university costs continue to increase an average of 4% per year and that all her university savings are invested in an account paying 7% interest, then the amount of money she will need to have available at age 18 to pay for all four years of her undergraduate education is closest to:

The correct answer is $97 110 however I still don't know how to have worked it out and the lecturer glossed over the methodology even though most people got it wrong.

If you could let me know how I can work it out I want to be prepared in case one like this comes up in the actual exam.

Thanks.