Question

You want to send your child to one years (12 months) of boarding school starting 6 months from now. The cost of the school is $7,000 per month for 12 months. If your investments earn 3% APR, compounded monthly, how much would you have to invest today to cover the cost of the boarding school?

Answer 1

Annual Interest rate: 3%
Monthly Interest rate: (3/12) = 0.25%
Month	Payments	PVf at 0.25%		Present value
6	7000	0.98513		6895.913
7	7000	0.982674		6878.716
8	7000	0.980223		6861.562
9	7000	0.977779		6844.451
10	7000	0.97534		6827.382
11	7000	0.972908		6810.356
12	7000	0.970482		6793.373
13	7000	0.968062		6776.432
14	7000	0.965648		6759.533
15	7000	0.963239		6742.676
16	7000	0.960837		6725.862
17	7000	0.958441		6709.089
Present value f payment made				81625.35
Amount required today: $ 81625.35
Note:
PVF os computed as under:
PVF for 6th mo;nth = 1 / (1.0025)^6 = 0.98513
PVF for 7th month = 1/ (1.0025)^7 = 0.982674
and so on.