Question

# 6. Tom and Mary have saved \$100,000 to finance their daughter Jenny’s college education. They deposited...

6. Tom and Mary have saved \$100,000 to finance their daughter Jenny’s college education. They deposited the money in the Arrowhead Savings and Loan Association, where it earns 5% interest compounded semiannually. What equal amounts can their daughter withdraw at the end of every 6 months during her 4 college years, without exhausting the fund?

Instructions: use the Compound interest tables to solve

-Future value of 1 (future value of a single sum)

-Present value of 1 (present value of a single sum)

-Future value of an ordinary annuity of 1

-Present value of an ordinary annuity of 1

-Present value of an annuity Due of 1

 Annuity payment= P/ [ [1- (1+r)-n ]/r ] P= Present value 100,000.00 r= Rate of interest per period Rate of interest per annum 5.0% Payments per year 2.00 Rate of interest per period 2.500% n= number of payments: Number of years 4 Payments per year 2.00 number of payments 8 Annuity payment= 100000/ [ (1- (1+0.025)^-8)/0.025 ] Annuity payment= 13,946.73

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