Discuss what is the advantage of investing immediately

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Reference no: EM132059706

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: EM132059706

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