Hi guys,
I’ve just learnt cfa level 1 and have a question with this exercise.
Suppose you plan to send your daughter to college in three years. You expect her to earn two-thirds of her tuition payment in scholarship money, so you estimate that your payments will be $10,000 a year for four years. To estimate whether you have set aside enough money, you ignore possible inflation in tuition 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 don’t understand that this exercise just mentions to the daughter can pay 2/3 tuition, not saying that she could pay full of tuition in the first 2 years. I thought that the daughter pays 2/3 tuition, thus the mother pays 1/3 tuition maybe in the first year. (t=1). I’m not a native so maybe i don’t really understand, please could someone explain it for me.
Thank you!
Greetings friend! Does your confusion come from understanding why the future value of payments is discounted back years?
Because if this is your confusion, then it seems to be because the daughter starts college in 3 years based on what you provided above. Basically you want to know how much money you need to set aside today, so that it can cover 4 consecutive $10k annual payments (the part of tuition costs you must cover) that only begin 3 years from now.
Maybe I misunderstand your question but perhaps this helps? Cheers👍
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Oh thank you. I’ve already realized where my mistake. 
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