Assume That You Are Graduating,that You Plan to Work for 4

question 29

Multiple Choice

Assume that you are graduating,that you plan to work for 4 years,and then to go to law school for 3 years.Right now,going to law school would require $17,000 per year (for tuition,books,living expenses,etc. ) ,but you expect this cost to rise by 8 percent per year in all future years.You now have $25,000 invested in an investment account which pays a simple annual rate of 9 percent,quarterly compounding,and you expect that rate of return to continue into the future.You want to maintain the same standard of living while in law school that $17,000 per year would currently provide.You plan to save and to make 4 equal payments (deposits) which will be added to your account at the end of each of the next 4 years;these new deposits will earn the same rate as your investment account currently earns.How large must each of the 4 payments be in order to permit you to make 3 withdrawals,at the beginning of each of your 3 years in law school? (Note: (1) The first payment is made a year from today and the last payment 4 years from today, (2) the first withdrawal is made 4 years from today,and (3) the withdrawals will not be of a constant amount. )

• A) $13,242.67
• B) $6,562.13
• C) $10,440.00
• D) $7,153.56
• E) $14,922.85

---

Definitions:

Average Total Cost

The total cost of production divided by the quantity of output produced, encompassing both fixed and variable costs.

Average Total Cost

The total cost of production divided by the number of units produced, measuring the cost per unit of output.

Fixed Costs

Business expenses that remain constant regardless of the level of production or sales.

Marginal Cost

The change in the total expense associated with the production of an extra unit of a product, whether it be an increase or decrease.