Question

In order to make things manageable, let’s assume two things:

1. College follows a calendar year that starts with January and ends in December(instead of an academic year), and

2. Any cash flows occur at the end of a year (the annuities will be much less difficultto deal with).

• Rory Gilmore is attending Yale University and majoring in journalism.o The first year of tuition and room/ board is a total of $60,000.

o However, these fees increase 6% per year.

o Each year, her grandparents give her an interest-free loan to pay for tuition androom/ board, and she will graduate in 4 years.

• She expects to earn $45,000 the first year after graduation.

o Rory plans on working after graduation for 40 years.

o Salaries in journalism grow an average of 4% per year.

• However, Rory could have earned $30,000 per year as a reporter for the Stars Hollow

newspaper (her hometown) without going to college.

o Her salary at the local newspaper would have grown 2% per year.

Question: Calculate and verify that Rory’s IRR is approximately 7.44%.