Question

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

Answer 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

Answer is $13,946.73

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