1) Prestigious University is offering a new admission and tuition payment plan for all alumni. On...

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1) Prestigious University is offering a new admission andtuition payment plan for all alumni. On the birth of a child,parents can guarantee admission to Prestigious if they pay thefirst year's tuition. The university will pay an annual rate ofreturn of 6.56.5 % on the deposited tuition, and a full refund willbe available if the child chooses another university. The tuitionis expected to be $18,000 a year at Prestigious 20 years from now.What would parents pay today if they just gave birth to a new babyand the child will attend college in 20 years? How much is therequired payment to secure admission for their child if theinterest rate falls to 4 %?

What would parents pay today if they just gave birth to a newbaby and the child will attend college in 20 years?

2) The State of Confusion wants to change the currentretirement policy for state employees. To do so, however, the statemust pay the current pension fund members the present value oftheir promised future payments. There are 240,000 current employeesin the state pension fund. The average employee is 20 years awayfrom retirement, and the average promised future retirement benefitis $450,000 per employee. If the state has a discount rate of 6.5 %on all its funds, how much money will the state have to pay to theemployees before it can start a new pension plan?

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Note In both the parts it is assumed that the rate of returnis compounded annuallyPart 1Amount to be paid today is See Answer

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1) Prestigious University is offering a new admission andtuition payment plan for all alumni. On the birth of a child,parents can guarantee admission to Prestigious if they pay thefirst year's tuition. The university will pay an annual rate ofreturn of 6.56.5 % on the deposited tuition, and a full refund willbe available if the child chooses another university. The tuitionis expected to be $18,000 a year at Prestigious 20 years from now.What would parents pay today if they just gave birth to a new babyand the child will attend college in 20 years? How much is therequired payment to secure admission for their child if theinterest rate falls to 4 %?What would parents pay today if they just gave birth to a newbaby and the child will attend college in 20 years?2) The State of Confusion wants to change the currentretirement policy for state employees. To do so, however, the statemust pay the current pension fund members the present value oftheir promised future payments. There are 240,000 current employeesin the state pension fund. The average employee is 20 years awayfrom retirement, and the average promised future retirement benefitis $450,000 per employee. If the state has a discount rate of 6.5 %on all its funds, how much money will the state have to pay to theemployees before it can start a new pension plan?