Question

Dan Weaver Wants to set up afund to pay for his daugther's education. In order to pay her expenses, he will need $25,000 in four years, $26,200 in five years, $27,200 in six years, and $28,500 in seven years. If he can put money into a fund that pays 6 percent interest, what lump-sum payment must Dan place in the fund today to meet his college funding goals?

Answer 1

Funds are required as per following - Year in which funds required Funds Required($) Year 4 25000 Year 5 26200 Year 6 27200 Year 7 28500 Total 106900

Discounting the above funds @ 6%, we get -

Year in which funds required	Funds Required($)	Funds discounted @ 6%
Year 4	25000	19802.34
Year 5	26200	19578.16
Year 6	27200	19174.93
Year 7	28500	18954.13
	106900	77509.56

The sum of present values of all above cash flows is $ 77509.56.

Therefore Dan needs to invest $ 77509.56 today in the fund to meet his college funding goals.