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CFP® Practice Question: Calculating Education Expenses

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Practice Question:

Tammy wants to set aside a sum of money today that will be sufficient to pay for 4 years of college tuition.  The 4 tuition payments will be made at the start of each year, beginning immediately. The first payment will be $10,000, and the tuition payments are expected to rise by 6% each year.  If Tammy’s money earns an after-tax interest rate of 8% per year, how much does she need to set aside today?

  1. $35,771.18
  2. $36,730.41
  3. $38,902.54
  4. $43,746.00