Matilda is planning for her daughter’s university education to begin five years from today. She estimated the annual tuition to be R40 000 per year for a three-year degree. Calculate how much must Matilda must deposit today, at an interest rate of 8% per annum, compounded annually, for her daughter to be able to withdraw R40 000 at the beginning of each year for three years of university. (You can assume an interest rate of 8% throughout the period)

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Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.