To help middle-income students finance the cost of their university educations, the Student Loan Authority guarantees student loans made by private b anks. By guaranteeing the loans, the agency enables the b anks to make the loans at rates far lower than they would without the guarantees.
In 20Xl the agency guaranteed $120 million of loans. It estimates that, owing to student defaults, it will have to fulfill its guarantees as follows (in millions):

1. Prepare the entry that the agency should make in 20Xl, the year it guarantees the loans. The agency applies a discount rate of 6 percent. It assumes that all guarantee payments will be made at the e nd of the indicated years.
2. Prepare the entries that it should make at the end of 20X2, assuming that it fulfills its guarantees, as estimated, of $0.5 million.

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Year 20X2 20X3 20X4 20X5 Amount $0.5 1.2 2.0 1.8