Question

*Please really dumb it down for me! I need to show my work and I want...

*Please really dumb it down for me! I need to show my work and I want to understand how it is done!*

Today your son is 12 years old. Your son will also begin college on his 18th birthday.
He will need $10,000 at the beginning of each year of college (freshman, sophomore, junior, and senior years).
At the present time you are able to find an investment fund paying 6% interest.
How much money must you invest today so your son will have the appropriate $10,000 available at the beginning of each year in college?

*Please really dumb it down for me! I need to show my work and I want to understand how it is done!*

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Answer #1

Solution:

Amount needed by son from 18th birthday = $10,000 at beginning of each year for 4 years

Therefore amount to be invested today in order to withdraw $10,000 from 6th year to 9th year is present value of withdrawl amount.

Computation of present value
Year Amount PV factor (6%) Present value
6 $10,000.00 0.70496 $7,050
7 $10,000.00 0.66506 $6,651
8 $10,000.00 0.62741 $6,274
9 $10,000.00 0.59190 $5,919
Total $25,893
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