You estimate that it will take ﬁve years to complete your college education.Your parents want to invest enough money today at an interest rate of 8% compounded annually to allow you to withdraw $10,000 at the end of each year for the next ﬁve years, with nothing left at the end.The amount of money to invest today is: Use appendix Table 1, Table 2, Table 3 and Table 4.

Question

Quizplus · Accepted Answer

Using Table 1, we can find the interest factor for 8% compounded annually over 5 years to be 1.46933.
Using Table 4, we can find the present value interest factor for an annuity of $1 for 5 years at 8% compounded annually to be 3.99271.
To calculate the amount of money to invest today, we can use the formula: 
Present value = Annual withdrawal amount x Present value interest factor for an annuity
Present value = $10,000 x 3.99271
Present value = $39,927.10
Round up to nearest cent: $39,930.
Therefore, the answer is choice C, $39,930.

You Estimate That It Will Take ﬁVe Years to Complete