Beginning three months from now,you want to be able to withdraw $1,700 each quarter from your bank account to cover college expenses over the next 4 years.The account pays 1.25 percent interest per quarter.How much do you need to have in your account today to meet your expense needs over the next 4 years?

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Quizplus · Accepted Answer

To solve this, we use the formula for the present value of an annuity: $PV = PMT \times \left[\frac{1 - (1 + r)^{-n}}{r}\right]$, where PMT is the payment amount per period, r is the interest rate per period, and n is the total number of payments. Here, PMT = $1,700, r = 0.0125 (1.25%), and n = 4 years * 4 quarters/year = 16 quarters. Plugging these values into the formula gives: $PV = 1700 \times \left[\frac{1 - (1 + 0.0125)^{-16}}{0.0125}\right] = $24,514.50$.

Beginning Three Months from Now,you Want to Be Able to Withdraw