Question

When their baby was ready to head off to college, the beleaguered parents pulled out the college folder from their file cabinet and added up the cost of putting their first child through college from 1995-2000. the mother whimpered as she factored in the rising cost of tuition, fees, books, and inflation by multiplying the total by 2.5. the father felt a searing pain go through his chest as he saw the total, knowing full well that their cost estimation approach, called:

a. Definitive estimation was highly accurate.
b. An order of magnitude estimate was highly accurate.
c. Feasibility estimation was highly accurate.
d. Parametric estimation was highly accurate.

Answer 1

The parents used a parametric estimation (option d) to calculate the future cost of college, which involved adjusting the historical cost of tuition by a factor that accounts for inflation and the rising cost of college education. This method is known for its accuracy when historical data and clear parameters are available.

Step-by-step explanation:

The approach used by the parents to estimate the cost of college is known as a parametric estimation. This method involves using statistical data, such as the historical cost of tuition and adjusting it for factors like inflation and the rise in college tuition and fees. It estimates the costs based on the identified parameters (in this case, the historical costs and inflation rate) and then applies a multiplier to adjust for future changes.

The parents factor in the rising cost of college and inflation by multiplying the total cost from when they attended college by 2.5. Considering historical data from the Bureau of Labor Statistics, which shows a substantial increase in tuition and fees over a 40-year period, this method attempts to provide a highly accurate estimate of future costs. A parametric estimation is often more reliable than other estimation approaches when historical data is available and when cost components correlate well with the parameters used for estimation.