Question

Today is your sons’ 6th birthday and you have saved $60,000 so far in a trust fund earning 9% interest, compounded annually. You expect your son to withdraw $25,000 per year for his college education starting his 18th birthday for 4 years. How much money will be left in the trust fund after your last withdrawal (rounded to the nearest dollar)?

a. $99,7559

b. $205,907

c. $135,716

d. $104,220.72

e. $115,657.55

Answer 1

FV at 18th Birthday = Investment * (1+r)^n

r is int rate per anum

n is no. of years of gap is there.

= $60000 * ( 1+0.09)^12

= $ 60,000 * (1.09^12)

= $ 60,000 * 2.8127

= $ 168759.89

Amount at 18th birthday after Withdrawl of $ 25000 is 143759.89

Amount at 19th Birthday = 143759.89 * 1.09

= $ 156,698.28

Amount at 19th birthday after withdrawl of 25000 is $ 131,698.28

Amount at 20th birthday = 131698.28 * 1.09

= $ 143,551.12

Amount at 20th birthday after withdrawl of 25000 is $ 118551.12

Amount at 21st birth day = 118551.12 * 1.09

= $ 129,220.72

Amount after withdrawl of 25000 is $ 104,220.72

OPtion D is correct.