Here is the deal: You can pay your college tuition at the beginning of the academic year or you can pay the same amount at the end of the academic year. You either already have the money in an interest-bearing account or will have to borrow it. Assume the cost of your tuition is $10,000 and the interest rate over the academic year is 10%. When will you choose to pay?

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Carolina Perez

19 September, 08:37

Here is the deal: You can pay your college tuition at the beginning of the academic year or you can pay the same amount at the end of the academic year. You either already have the money in an interest-bearing account or will have to borrow it. Assume the cost of your tuition is $10,000 and the interest rate over the academic year is 10%. When will you choose to pay?

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Rohan Johnston · Answer 1

I will pay at the end of the academic year in both cases because I can earn $1,000 in interest on $10,000 whether I borrow $10,000 now or keep my own $10,000 in the bank.