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 6.54% interest a sum of money that is sufficient to provide the 4 payments of $20,000 each. His deposit will be made today.
How large must the deposit be? Round your answer to the nearest cent. _______$
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 _______$
1.
PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)] |
C = Cash flow per period |
i = interest rate |
n = number of payments |
PV= 20000*((1-(1+ 6.54/100)^-4)/(6.54/100)) |
PV = 68453.71 |
2.
Amount after withdrawal = FV year 1 - one year fees
Future value = present value*(1+ rate)^time |
Future value = 68453.71*(1+0.0654)^1 |
Future value = 72930.58 |
amount = 72930.58-20000 = 52930.58
3.
amount after last withdrawal will be as deposit amount is large enough to only fund all 4 withdrawals
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