Carol Channing is planning for her son's college education to begin five years from today.She estimates the yearly tuition, books, and living expenses to be $5,000 per year for a four-year degree.How much must Carol deposit today, at an interest rate of 8 percent, for her son to be able to withdraw $5,000 per year for four years of college?

Question

Quizplus · Accepted Answer

To find the present value of the annuity, we use the formula for the present value of an ordinary annuity and then discount it back to today. The present value of $5,000 per year for four years at 8% is calculated, and then this amount is discounted back five years at 8% to find the amount Carol needs to deposit today.

Carol Channing Is Planning for Her Son's College Education to Begin