Thelma 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 Thelma 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 withdrawals, we use the formula for the present value of an annuity. The present value of $5,000 per year for four years at an 8% interest rate is calculated, and then discounted back five years to today. The correct calculation results in approximately $11,277.

Thelma Is Planning for Her Son's College Education to Begin