Question

In: Accounting

Suppose you borrow money from your parents for college tuition on January​ 1, 2015. Your parents...

Suppose you borrow money from your parents for college tuition on January​ 1, 2015. Your parents require four annual payments of​ $30,000 each, with the first payment due on January​ 1, 2019. They are charging you​ 4% annual interest. What is the cost of the college​ tuition?

A. $113,253

B. $96,809

C. $120,000

D. $89,707

Solutions

Expert Solution

Answer

First payment is due after 4 Years, so

Cost of Tuition = Present Value of Annual Payments

Year

PVF @ 4%

Repayment

Present Value

1

0.962

                       -  

                        -   

2

0.925

                       -  

                        -   

3

0.889

                       -  

                        -   

4

0.855

             30,000

       25,644.126

5

0.822

             30,000

       24,657.813

6

0.790

             30,000

       23,709.436

7

0.760

             30,000

       22,797.534

Total

       96,808.909

Answer = B

Dear Student, if u have any doubt, plz feel free to reach me.

ekkarill92 answered 1 year ago
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