You estimate that it will take five years to complete your university education. Your parents want to invest enough money today at 12 per cent to enable you to withdraw $5000 at the end of each year for the next five years with nothing left at the end of the five-year period. How much money do they need today?

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ewomazinoade ewomazinoade · Answer 1 · 2021-03-13T01:11:20+01:00

Answer:

$18,023.88

Step-by-step explanation:

The amount they would need today can be determined by finding the present value of the 4 year annuity

Present value is the sum of discounted cash flows

Present value can be calculated using a financial calculator

Cash flow each year from year 1 to 5 = $5000

I = 12%

PV = $18,023.88

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