Michael is planning for his son's college education to begin ten years from today. He estimates the yearly tuition, books, and living expenses to be $10,000 per year for a four year degree. How much must Michael deposit today, at an interest rate of 12 percent, for his son to be able to withdraw$10,000 per year for four years of college?
A) $40,000
B) $10,953
C) $18,950
D) $12,880

Question

Quizplus · Accepted Answer

The future value of the withdrawals is $10,000 x 4 = $40,000. The present value of this amount at 12% for 10 years is $40,000 / (1.12)^10 = $10,953.

Michael Is Planning for His Son's College Education to Begin