Inflation, time value, and annual deposits Sadiq Ansari wants to support his daughter’s education by paying for her MBA degree from a premier university in Britain. Research indicates that the fees for a 1-year MBA course at any good British university will cost £35,000 now. His daughter is 3 years old and he expects that he will need to pay her fees in 20 years. He wishes to invest a fixed amount at the end of each of the next 20 years to fund her degree. He is also aware that, on average, the fees are likely to increase by 4% annually.
a. What is the expected fees for an MBA degree in 20 years, when Sadiq will have to pay for his daughter’s course?
b. How much must Sadiq invest at the end of each of the next 20 years if his investments pay 8% every year.
c. If Sadiq invests at the beginning instead of at the end of each year, how much must he invest each year if his investments pay the same 8% per year?
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