Your sending your daughter to a prestigious private college starting next year. She will attend for four years.

Your sending your daughter to a prestigious private college starting next year. She will attend for four years. The current cost for one year is $60,000, but is expected to rise 2% per year over the next 10 years. The school has a "tuition stabilization" plan whereby you can pay for the entire four years by writing a single check for $240,000 when your daughter begins college. Otherwise, you simply pay each year's tuition as you go. If your investments earn 6% per year, what is the difference in present value terms between the two plans?

$605

$9,285

$678

$8,317

$8,218

2. You plan on going on a 3 month vacation 8 months from now.

You can pay $4,500 per month during the vacation, or you can pay $13,000 today.

Which alternative should you take and how much does it save you in present value term if your investments earn 3.00% APR (compounded monthly)?

Pay each month when you get there, you will save $433

Pay today you will save $200

Pay today you will save $433

Pay each month when you get there, you will save $200

3.You can purchase an appliance (refrigerator, furnaces, A/C, etc.) maintenance contract. You can pay $1,000 today for a year's maintenance coverage or pay $90 per month, each month, starting today, for 12 months.

If your investments earn 5.00% APR (compounded monthly), how much would you save or would it cost you (in present value terms) to pay on a monthly basis?

You would lose $81.04

You would save $51.31

You would lose $51.31

You would save $81.04

You would lose $55.69

You would save $55.69

4.You can lease a car for 5 years by paying $5,000 today and then making lease payments of $350 per month (starting next month) for 5 years.

Or you can buy the car now for $30,000 and then in 5 years sell the car for $18,000

Either way you have use of the car for 5 years. If your investments earn 5.00% APR (compounded monthly) which alternative is cheaper and by how much in present value terms?

Buying is cheaper in PV terms by $7,209

Leasing is cheaper in PV terms by $2,572

Leasing is cheaper in PV terms by $7,209

Buying is cheaper in PV terms by $7,572

Leasing is cheaper in PV terms by $7,572

Buying is cheaper in PV terms by $2,572