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%.