Hi there, I have a question I don\'t know the answer for, if you could please ex

Question

Hi there,

I have a question I don't know the answer for, if you could please explain the answer to me that would be awesome. Thank you very much!

David is planning for his daughter’s future university education. He estimates that his daughter will need $15,000 per year for four years. The first payment of $15,000 would be at the beginning of year eleven. How much must David deposit today, at an interest rate of 8 percent, for his daughter to be able to withdraw $15,000 per year for four years?

A. $12,880

B. $23,012

C. $24,853

D. $27,792

E. $49,682

Explanation / Answer

Since the cash flow has to be occured at the begining of 11 th year it is to be taken as end of 10th year for present value factor caluclation.

The problem has been soolved by taking each year cashflow as seperate item and future value of $15,000 has been brought to present value for each year.

year cashflow PVF@8% discounted cashflow 10 15000 0.4632 6948 11 15000 0.4288 6432 12 15000 0.3971 5956.5 13 15000 0.3677 5515.5 TOTAL $24,853

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