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Quilici Family Case Study
(Time Value of Money
Case Study)
Lizbeth Marie Lim
MA2N0226
October 21, 2014
S
Quilici Family
S Composed of Greg (father), Debra (mother), and 5 year old
son Brady.
S Greg is a partner in the family owned commercial painting
business.
S Debra is a housewife.
The visit to the financial planner
S Greg and Debra became concerned of their spending, and
that they are not putting enough money for their son’s future
education needs as well as their own retirement
S They have a Koegh plan (retirement plan for self-employed
individuals and small businesses in the US), but they did not
account for Brady’s education.
Money Matters
S Greg earns $85,000 a year.
S Greg is an alumnus of Stanford University
(Tuition = $20,000 per year)
S Debra graduated from University of North Carolina
at Chapel Hill (Tuition = $2,500 per year)
S The couple wants to send Brady to either school when he
turns 18, with a slight preference towards Stanford
Money Matters (cont.)
S Tuition is expected to increase at an annual rate of 5%
S Living expenses are estimated to be $6000 per year for both
schools (expecting to grow 3% per year)
S The couple can deposit their money into a growth oriented
mutual fund at Neuberger and Berman Management, Inc.
(historically earning 12% per annum)
Questions
S How much will the tuition and living expenses be per year
when Brady is ready to attend? Give an answer for each
university.
S Once Brady starts college what will his total expenses be in
each of his four years? Again, give an answer for each
university.
S How much money will Greg and Debra have to deposit per
month to allow Brady to attend Stanford University? How
much money will have to be deposited per month to allow
Brady to attend the University of North Carolina? (Consider
the cost of all four years.)
Questions (cont.)
S What if the Quilicis feel the Neuberger & Berman mutual
fund will only yield 10 per cent? How much will have to be
deposited per month in order for Brady to attend each
college?
S What is the relationship between the amount that must be
deposited monthly by the parents and the future increases in
both tuition and living expenses?
Question 1
S Tuition and living expenses for both schools
S Stanford:
Given: $20,000 for tuition (5% increase/year)
$6,000 for living expenses (3% increase/year)
Using the Future Value of Money Formula:
FVn= PV*(1+i)n
Total Costs for Stanford = (20,000 (1+0.05)13) + (6,000
(1+0.03)13)
= $37,712.98 +
$8,811.20
=$46,524.18
Question 1 (cont.)
S Tuition and living expenses for both schools
S University of North Carolina at Chapel Hill:
Given: $2,500 for tuition (5% increase/year)
$6,000 for living expenses (3% increase/year)
Using the Future Value of Money Formula:
FVn= PV*(1+i)n
Total Costs for UNC = (2,500 (1+0.05)13) + (6,000 (1+0.03)13)
= $4,714.12+ $8,811.20
=$13,525.32
Question 2
S Expenses for each of Brady’s four years in both universities
S Stanford University
Using the Future Value of Money Formula (FVn= PV*(1+i)n)
Year 1: Tuition: $37,712.98 (1+0.05)0 = $37,712.98
Year 1: Living Expenses: $8,811.20 (1+0.03)0 = $8,811.20
Year 1 Total: $46,524.18
Year 2: Tuition: $37,712.98 (1+0.05)1 = $39,598.63
Year 2: Living Expenses: $8,811.20 (1+ 0.03)1= $9,075.54
Year 2 Total: $48,674.17
Question 2 (cont.)
S Expenses for each of Brady’s four years in both universities
S Stanford University
Using the Future Value of Money Formula (FVn= PV*(1+i)n)
Year 3: Tuition: $37,712.98 (1+0.05)2 = $41,578.56
Year 3: Living Expenses: $8,811.20 (1+0.03)2 = $9,347.80
Year 3 Total: $50,926.36
Year 4: Tuition: $37,712.98 (1+0.05)3 = $43,657.49
Year 4: Living Expenses: $8,811.20 (1+ 0.03)3= $9,628.24
Year 4 Total: $53,285.73
Question 2 (cont.)
S Expenses for each of Brady’s four years in both universities
S University of North Carolina at Chapel Hill
Using the Future Value of Money Formula (FVn= PV*(1+i)n)
Year 1: Tuition: $4714.12 (1+0.05)0 = $4,714.12
Year 1: Living Expenses: $8,811.20 (1+0.03)0 = $8,811.20
Year 1 Total: $13,525.32
Year 2: Tuition: $4714.12 (1+0.05)1 = $4,949.83
Year 2: Living Expenses: $8,811.20 (1+ 0.03)1= $9,075.54
Year 2 Total: $14,025.37
Question 2 (cont.)
S Expenses for each of Brady’s four years in both universities
S University of North Carolina at Chapel Hill
Using the Future Value of Money Formula (FVn= PV*(1+i)n)
Year 3: Tuition: $4,714.12(1+0.05)2 = $5,197.32
Year 3: Living Expenses: $8,811.20 (1+0.03)2 = $9,347.80
Year 3 Total: $14,545.12
Year 4: Tuition: $4,714.12 (1+0.05)3 = $5,457.18
Year 4: Living Expenses: $8,811.20 (1+ 0.03)3= $9,628.24
Year 4 Total: $15,085.42
Question 3
S How much money should be deposited per month to allow
Brady to go to Stanford? to go to University of North
Carolina?
Using the formula for Annuity Due Payments Given Future Value:
Question 3 (cont.)
S
Stanford University
S
University of North Carolina
S Year 1: $123.76
S Year 1: $35.98
S Year 2: $111.53
S Year 2: $32.14
S Year 3:$100.93
S Year 3: $28.83
S Year 4: $91.65
S Year 4: $25.95
S Four Year Total: $427.87
S Four Year Total: $122.90
Question 4
S Similar to Question 3, only the interest rate was changed (10%
per annum)
Using the formula for Annuity Due Payments Given Future Value:
Question 4 (cont.)
S
Stanford University
S
University of North Carolina
S Year 1: $145.16
S Year 1: $42.20
S Year 2: $132.73
S Year 2: $38.25
S Year 3:$121.90
S Year 3: $34.82
S Year 4: $112.38
S Year 4: $
S Four Year Total: $512.17
S Four Year Total: $31.81
Question 5
S What is the relationship between the amount that must be
deposited monthly by the parents and the future increases in
both tuition and living expenses?
There is a positive relationship between the amount that must ne
deposited every month and the future increase in tuition and
living expenses.