Question

*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 18^th 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!*

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