Answer: $5,132.66
Explanation:
If the current tuition costs are $12,000 but increasing at a rate of 3% every year, the cost of tuition in first year when Samuel will be 18 is;
= 12,000 * ( 1 + r) ^ n
= 12,000 * (1 + 3%) ^ (18 - 3)
= $18,695.61
Assuming that the account will pay 9% per year on an investment now, Samuels's Dad will have to pay the present value of the tuition fee discounted at 9%.
= 18,695.61 / ( 1 + 9%) ^ 15
= $5,132.66
