Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 34

The Texas Tomorrow Fund (TTF) is a program started in 1996 in Texas wherein parents could prepay their child's college tuition when the child was young. Actuaries set the price based on costs and investment earnings at that time. Later, the Texas legislature allowed universities to set their own tuition rates; tuition costs jumped dramatically. The cost for entering a newborn in 1996 was $10,500. If the TTF fund grew at a rate of 4% per year, while tuition costs increased at 7% per year, determine the state's shortfall when a newborn enters college 18 years later.