A couple determines that their daughter's college education, which costs Rs. 20,00,000 in today's terms, is due in exactly 10 years. If education inflation is projected at 8% per annum compounded annually, what is the estimated corpus required at the time of college admission?

[ A ]Rs. 43,17,850[ CORRECT ]

[ B ]Rs. 36,00,000

[ C ]Rs. 21,60,000

[ D ]Rs. 50,36,340

Takeaway

Option A is correct: Rs. 43,17,850

Derivation

Future value of a financial goal is computed using the compound inflation formula: FV = PV * (1 + r)^n. Substituting the given values: FV = 20,00,000 * (1 + 0.08)^10 = 20,00,000 * 2.158925 = Rs. 43,17,850. This question tests the candidate's understanding of how compounding price inflation erodes purchasing power over long horizons and expands future funding requirements. The primary pitfall is calculating simple interest (Rs. 20,00,000 + 80% = Rs. 36,00,000) or ignoring the compounding effect entirely.

Why the others fail

B — Rs. 36,00,000

Rs. 36,00,000 is derived from a simple arithmetic expansion of 80% (8% * 10 years) without applying annual compounding.

C — Rs. 21,60,000

Rs. 21,60,000 erroneously adds only a single year of 8% inflation to the present value instead of compounding over 10 years.

D — Rs. 50,36,340

Rs. 50,36,340 results from incorrectly compounding at an assumed 10% annual inflation rate rather than the given 8% rate.