Question

Dan Weaver wants to set up a fund to pay for his daughter's education. In order to pay her expenses, he will need $20,000 in four years, $21,100 in five years, $22,900 in six years, and $24,300 in seven years. If he can put money into a fund that pays 6% interest, what lump-sum payment must Dan place in the fund today to meet his college funding goals? Round the answer to the nearest cent. Round PV-factor to three decimal places. $

Answer 1

Answer:

$63,913.50

Explanation:

We are to find the present value of the cash flows from year 4 to 7

Present value can be calculated using a financial calculator

Cash flow each year from year 1 to 3 = $0

Cash flow in year 4 = $20,000

Cash flow in year 5 = $21,100

Cash flow in year 6 = $22,900

Cash flow in year 7 = $24,300

I = 6%

Present value = $63,913.50

To find the PV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute