How much money does Jessica have in her Education Savings plan if, starting today, she can withdraw $350 per month for four years and her plan earns 7.2% compounded monthly?

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Quizplus · Accepted Answer

Jessica's Education Savings plan is essentially an annuity, where she withdraws a fixed amount each month for a certain period. The formula to calculate the present value of an annuity is P = PMT * [(1 - (1 + r)^-n) / r], where P is the present value of the annuity, PMT is the monthly payment, r is the monthly interest rate, and n is the total number of payments. Given that Jessica withdraws $350 per month for four years (48 months) and the annual interest rate is 7.2% (or 0.072), the monthly interest rate is 0.072/12 = 0.006. Plugging these values into the formula gives us the present value of Jessica's Education Savings plan, which is closest to the value given in option E, $14,647.

How Much Money Does Jessica Have in Her Education Savings