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Suppose the following:

  • if a child's age is 2 years today and
  • he/she will go to college at the age of 15 years
  • for 2 years(duration of education) and
  • for which Cost incurred P.A. as on today (Rs.) 100000,
  • Expected rate of return (%) 12
  • Expected Inflation rate (%) 6,

how can we calculate the future expenditure of education of child.

And for help the answer is: Amount required at start of College (Rs.) :4,39,383

To meet this Goal you must Invest (Rs.) :
- 1,00,695 Lumpsum amount
OR
- 1,228 Monthly SIP

Can anyone help me to get the formula to calculate the future amount with right logic.

3

After 13 years, you need Future value of Rs 1,00,000. This means the value of Rs 1,00,000 after 13 years with inflation of 6%.

So Amount = Principal*(1+Rate) Raise to "No of Years"
Amount = 1,00,000*(1+6%)^13 = 213292.826

For the second year like wise you need to find the value of Rs 1,00,000 for 14 years that would be around 226090.3956

Hence Total Amount required is 439383.

In order to achieve this, if you invest lumpsum of 1,00,695 it will give you 439383 at 12% after 13 years. Like wise a Monthly SIP with 12% returns.

  • Assuming fees are paid each year, could you get away with very slightly less? You want a lump sum that after 13 years will give 2,13,292 (for the first year's education) and leave enough that after another year's 12% growth will give 2,26,090 for the second year? Similarly if investing monthly. – TripeHound Jan 19 '18 at 10:19
  • @TripeHound Agreed. That is the right way to calculate. The reason I should is differently was because the question asked what is the amount needed at the start of the collage for both the years. Hence inflation is considered for second year of collage, but growth is not. Anyways from the OP's other questions this looks more like Home work question. – Dheer Jan 19 '18 at 10:32

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