Question
The anonymous hedge fund billionaire benefactor wishes to pay educational expenses for 10 outstanding freshmen university students. He wishes to make equal annual payments to
The anonymous hedge fund billionaire benefactor wishes to pay educational expenses for 10 outstanding freshmen university students. He wishes to make equal annual payments to a bank account earning a 5% interest rate to provide for their education at the university and for their two years of graduate school as well. He estimates the educational expenses per student to be: $34,000 annually beginning one year from now and lasting for four years while at university and $60,000 per year for two years thereafter while at grad school.
Draw the time line and show educational expenses on it.
What is the PV of these expenses for the benefactor, given his 5% rate of return?
If the benefactor wants to make 6 equal annual payments to the bank account to finance these educational costs, what should be the amount of each annual payment if he starts contributing one year from now?
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