Sufficient funds to cover all four payments

Assignment Help Financial Management

Reference no: EM132059592

John is a German student who is looking to study abroad in England University. He intends to begin her studies on the 31 January 2019. He intends to undertake a Commerce which is a 4-year course. The England University informs her that the fee for a Commerce. is $12,000 per annum. The first fee is due on the 31 January 2019 and falls due every following year on the same date. Unfortunately, John has not been able to gain sponsorship or a scholarship either from Germany or England for the Commerce. He is fearful that he will no longer be able to make her dream come true of studying abroad. Desperate to undertake the Commerce, John turns to his family for help. A kind uncle of him, David, offers to fund him for the full Commerce. enrolment period. He offers to pay the $12,000 every year for the 4 years. David is extremely wealthy, and there are no constraints on how much he is willing to pay. He states he will deposit an equal sum of money into a savings account every month. The first deposit will be made on the 1 February 2018. David intends to make 12 regular deposits at the beginning of each month. The last deposit will be made on the 1 January 2019. Interest rates have remained relatively constant in recent history and are believed to remain steady at 4% p.a. Answer the following questions in relation to the case study. Your answer must also be expressed in a sentence. Show full workings.

a) To find the best solution to John’s financial problem, David decides that he will make a deposit at the beginning of every month. Discuss what is the advantage of investing immediately over delaying to the end of the month?

b) What is the total present value of the four university payments as at 31 January 2019? What is the equivalent present value as at 31 January 2018?

c) How much money will David need to deposit at the beginning of every month to ensure there are sufficient funds to cover all four payments?

d) David has made his first withdrawal of $12,000 on the 1 February 2019 to pay the first of the four fees. How much is left in the account after the first withdrawal?

Reference no: EM132059592

Questions Cloud

What will woozless stock price be with the new policy : Assuming the risk does not change and the required return stays at 9%, what will Woozles's stock price be with the new policy? Show your work.

What would be the inflation premium : An investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. What would be the inflation premium

Best help the company minimize potential losses : which of the following hedging tactics would best help the company minimize potential losses?

Determine the profitability index of project : A project has an initial outlay of $1,171. It has a single payoff at the end of year 5 of $7,062. What is the profitability index (PI) of the project.

Sufficient funds to cover all four payments : How much money will David need to deposit at the beginning of every month to ensure there are sufficient funds to cover all four payments?

What is the price of treasury bonds in dollars : A municipal bond quoted at 100.45. If the Treasury bonds have a par value of $1,000. What is the price of treasury bonds in dollars

Determine the total dollar value of sales : During FY 2016, Bravo Company plans to sell Widgets for $5.00 a unit. determine The total dollar value of sales that Bravo must achieve in FY 2016 to breakeven

Evaluate the irr of the project : If a project has an initial outlay of $40,000 and cash flows of $15,000 per year for the next 5 years, what is the IRR of this project?

Determine the optimal order size : The dairy can make 250 pounds of cheese per day (365 days per year), and the demand at area stores is 180 pounds per day.

User Account

All Pages