Course:  Fundamentals of Financial Planning
Lesson 7: Educational Aid and Funding Calculation

Student Question:

In Step 5: solving for LUMP SUM needed today…

Step 5: Determine funding actually needed

Lump sum needed TODAY to fund the full cost of college education.

How come we are solving for PV and not PMT?

Thanks.

Kelly


Instructor Response:

Hi Kelly,
 
If any employee-incurred expenses related to her employer’s business,

Thank you for the question.  You make a great point.  The bottom line is that we must speak the “language” of the calculator. 

  • When we want to know how much is needed to fund a future goal in one lump sum today, we use PV.  In this context, you could say that PV is the lump sum payment amount that must be contributed today to fund future tuition needed under the assumption that there will be no monthly payments.
  • PMT is the opposite.  In this example, there is no lump sum immediate contribution.  Monthly payments are required.

How completely does this address your question?

Onward and Upward,

Bruce