Suppose you plan to send your daughter to college in 3 years You expect her to earn 2/3 of her tuition payment in scholarship money, so you estimate that your payments will be $10 000 a year for 4 years. To estimate whether you have set aside enough money, you ignore possible inflation in tution payments and assume that you can earn 8 percent annually on your investments. How much should you set aside now to cover these payments?
I ended up getting an answer of $26 292.77. The answer is $28 396.15 It seems I have discounted one period too far. However I do not understand why they only discount the original figure backwards by 2 periods, not 3? (as you have to send your daughter to college in 3 years, not 2).
Any help would be fantastic. Thanks