Question

Required Lump-Sum Payment

To complete your last year in business school and then go through law school, you will need $20,000 per year for 4 years, starting next year (that is, you will need to withdraw the first $20,000 one year from today). Your uncle offers to put you through school, and he will deposit in a bank paying 4.61% interest a sum of money that is sufficient to provide the 4 payments of $20,000 each. His deposit will be made today.

1. How large must the deposit be? Round your answer to the nearest cent.
   $   
   
2. How much will be in the account immediately after you make the first withdrawal? Round your answer to the nearest cent.
   $   
   
   How much will be in the account immediately after you make the last withdrawal? Round your answer to the nearest cent. Enter "0" if required
   $  

Answer 1

a)	Amount to be deposited today = PV of the 4 EOY withdrawals
	of $20000 at 4.61% = 20000*(1.0461^4-1)/(0.0461*1.0461^4) =	$      71,566.23
b)	Amount in the account immediately after the 1st withdrawal = 71566.23*1.0461-20000 =	$      54,865.43
c)	Amount in the account immediately after the last withdrawal =	$                     -