You have been accepted to study gourmet cooking at Le Cordon Bleu Culinary Institute in Paris, France. You will need $15,000 every six months (beginning six months from now) for the next three years to cover tuition and living expenses. Mom and Dad have agreed to pay for your education. They want to make one deposit now in a bank account earning 6% interest, compounded semiannually, so that you can withdraw $15,000 every six months for the next three years. How much must they deposit now?

Question

Quizplus · Accepted Answer

This is a present value of an annuity problem, where the annuity (payment) is $15,000, the interest rate per period (semiannual) is 3% (6% annual rate divided by 2), and the number of periods is 6 (3 years times 2 periods per year). The formula for the present value of an annuity is used to calculate how much needs to be deposited now to achieve these withdrawals. The correct calculation leads to the answer provided in option D.

You Have Been Accepted to Study Gourmet Cooking at Le