Question:Your child is about to enter college a year from now. A local
foundation provides scholarships...
Question
Your child is about to enter college a year from now. A local
foundation provides scholarships...
Your child is about to enter college a year from now. A local
foundation provides scholarships (essentially interest-free loans)
each year perpetually for students. Your child has won the
scholarship just now. When your child joins college, he/she would
receive a scholarship of $ 10,000 per year annually for 4 years.
Your child is expected to repay the scholarship amount of $ 40,000
in 15 equal yearly installments, interest-free beginning a year
after the expiration of his/her scholarship. The foundation seems
to be giving an interest free loan. The market interest rate is 8%
and would not change in the future.
What is the PV of the scholarship?
If the foundation invests a lump sum today to fund all future
scholarships. What must be that investment today?