present value
Rachael Berry, a freshman horticulture major at the University of Minnesota, has some financial questions for the next three years of school and beyond.
(a) If Rachael’s tuition, fees, and expenditures for books this year total $12,000, what will they be during her senior year (three years from now), assuming costs rise 6 percent annually?
(b) Rachael is applying for a scholarship currently valued at $5000. If she is awarded it at the end of next year, how much is the scholarship worth in today’s dollars, assuming inflation of 5 percent?
(c) Rachael is already looking ahead to graduation and a job, and she wants to buy a new car not long after her graduation. If after graduation she begins a savings program of $2400 per year in an investment yielding 6 percent, what will be the value of the fund after three years?
(d) Rachael’s Aunt Karroll told her that she would give Kathryn $1000 at the end of each year for the next three years to help with her college expenses. Assuming an annual interest rate of 6 percent, what is the present value of that stream of payments?
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present value