Q1) John and Jane are analyzing promises from political candidates about reducing the cost of attending university. Their daughter, Jane Jr., plans to attend the University of Southern Ontario (USO) for four years, starting one year from now. Tuition at USO is currently $6000 per year, paid at the beginning of each year. Tuition is expected to rise by $400 each year. Use an annual interest rate of 5%.
(a) The Red Party promises to freeze tuition, so that it will stay at $6000 for each of the four years that Jane Jr. attends USO. What is the value today of the Red Party’s plan?
(b) The Yellow Party promises to give scholarships of $1000 per year, awarded at the beginning of each school year. What is the value today of Jane Jr.’s scholarship?
(c) The Blue Party promises to give Jane Jr. a tax credit after she graduates. At the end of the first year after she graduates, and continuing each year afterwards, her income taxes will be reduced by $200. What is the value today of the Blue Party’s tax credit? Assume she lives forever.
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