Please provide an explanation of all answers included with formulas you used. Yo

Question

Please provide an explanation of all answers included with formulas you used.

You just welcomed a new born boy. You want him to go to Harvard and you estimated that he will need $80,000 a year for 4 years starting 18 years from today. You are wondering how much money you need to invest in today in an investment gives 4 percent annual return to pay your son’s cost of college. How much do you need now? Round to the nearest cent. Do not include any unit (If your answer is $111.11, then type 111.11 without $ sign.)

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Your friend brought up an investment opportunity that will generate cash flows of $5,000, $5,300, and $6,000 next three years, respectively. If your required rate of return on this investment is 12%, how much at most are you willing to pay? Round to the nearest cent. Do not include any unit (If your answer is $111.11, then type 111.11 without $ sign.)

Explanation / Answer

1.Present value=Cash flows*Present value of discounting factor(4%,time period)

80000/1.04^18+80000/1.04^19+80000/1.04^20+80000/1.04^21

=80000[1/1.04^18+1/1.04^19+1/1.04^20+1/1.04^21]

=(80000*1.863491093)

which is equal to

=$149079.29(Approx).

2.

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=5000/1.12+5300/1.12^2+6000/1.12^3

which is equal to
=$12960.09(Approx).

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