FINANCE CH6 Question 4 (of 9) value 10.00 points Beginning three months from now

Question

FINANCE CH6 Question 4 (of 9) value 10.00 points Beginning three months from now, you want to be able to withdraw $3,500 each quarter from your bank account to cover college expenses over the next five years. If the account pays 0.57 percent interest per quarter, how much do you need to have in your bank account today to meet your expense needs over the next five years? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e g 32/16)) PVA ReferenceseBook & Resources Worksheet Difficulty Basic

Explanation / Answer

Solution :- Number of quarters in five years = 5 * 4 = 20 Quarters.

Present value of withdrawals made over period of 20 quarters = 3500 * [ 1 - (1 + 0.57 / 100)-20 ] / (0.57 / 100)

= 3500 * [ 1 - (1 + 0.0057)-20 ] / 0.0057

= 3500 * [ 1 - (1.0057)-20 ] / 0.0057

= 3500 * [ 1 - 0.8925 ] / 0.0057

= 3500 * 0.1075 / 0.0057

= 3500 * 18.8596

= $ 66008.60

Present value of single amount of $ 66008.60 =  66008.60 / (1 + 0.0057)1

= 66008.60 / (1.0057)1

= 66008.60 / 1.0057

= $ 65634.48 (approx).

Conclusion:- Amount needed in bank account today to meet expense need over 5 year period = $ 65634.48

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