In: Economics
create a cash flow analysis and diagram for a government paying for student's tuition and another cash flow analysis and diagram for a student paying their own tuition (any country). Thanks
Assume rate of interest = 10% and government offers 2,000 per year for a 4 year degree
Present value is calculated as: [Payment / (1 + Rate of Interest)^Year]
Year | Government Payment | Present Value |
1 | 2,000.00 | 1,818.18 |
2 | 2,000.00 | 1,652.89 |
3 | 2,000.00 | 1,502.63 |
4 | 2,000.00 | 1,366.03 |
6,339.73 |
Student repays the loan in 6 years by paying $X each year from year 5 onwards.
Year | Repayment | Present Value |
5 | X | 0.62X |
6 | X | 0.56X |
7 | X | 0.51X |
8 | X | 0.47X |
9 | X | 0.42X |
10 | X | 0.39X |
2.97X |
Present value of both amount should be same: 2.97X = 6,339.73
X = 2,131.22