To complete your last year in business school and then go through law school, yo
ID: 2729316 • Letter: T
Question
To complete your last year in business school and then go through law school, you will need $25,000 per year for 4 years, starting next year (that is, you will need to withdraw the first $25,000 one year from today). Your uncle offers to put you through school, and he will deposit in a bank paying 7.59% interest a sum of money that is sufficient to provide the 4 payments of $25,000 each. His deposit will be made today.
How large must the deposit be? Round your answer to the nearest cent.
$
How much will be in the account immediately after you make the first withdrawal? Round your answer to the nearest cent.
$
How much will be in the account immediately after you make the last withdrawal? Round your answer to the nearest cent. Enter "0" if required
$
Explanation / Answer
Formula: PV = Pmt x ((1-((1+r)-n )) / r)
Payment per period (PMT) = $25,000
Interest Rate per period= 7.59%
Number of periods (n) = 4
PV = $25,000 x ((1-((1+0.0759)-4)) / 0.0759) = $83,564.51
Available amount before withdrawal = $83,564.51 x (1+0.0759) = $89,907.05
Available amount after withdrawal = $89,907.05 - $25,000 = $64,907.05
After last withdrawal, available balance will be 0 as the amount deposited today is only to provide you 4 withdrawals of $25,000.
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