Question

Chris is planning for her son's University education to begin five years from today. She estimates the yearly tuition, books and living expenses to be $5 000 per year for a four-year degree. Assume that all living expenses are paid in full at the end of each year of study. Approximately how much must Chris deposit today, at an interest rate of 8% per annum, for her son to be able to withdraw $5 000 per year for four years of University? Round to the nearest $10.

Group of answer choices

$11 277

$19 999

$39 520

$13 620

Answer 1

Value to be required at the beggining of the college =

=

= 5000 * 3.31212684037

= 16560.6342018

Now this value is required at the beggining of the college which is 5 years from so, we will dicount this amount by 5 years to get what we need to deposit today.

Present Value = Future Value / (1+r)^ n

= 16560.6342018 / (1+0.08)^5

= 11277 (approx)

Option A is correct.

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