Joey is planning for his son\'s college education to begin eight years from toda
ID: 2811211 • Letter: J
Question
Joey is planning for his son's college education to begin eight years from today. He estimates the yearly tuition, books, and living expenses to be $15,000 per year for a four-year degree. How much must Joey deposit today, at an interest rate of 7 percent, for his son to be able to withdraw $15,000 per year for four years of college? Assume first withdrawal on the first day of College (beginning of the year) and the tuition and other expenses remain constant.
$4,952.16
$5,298.81
$34,920.55
$60,000.00
$31,640.77
A)$4,952.16
B)$5,298.81
C)$34,920.55
D)$60,000.00
E)$31,640.77
Explanation / Answer
Option E
Using financial calculator:
Compute the PV of withdrawals 8 years later:
Set mode to BGN
I/Y=7%
N=4
PMT=15000
FV=0
CPT PV=54364.740666246
Compute deposits required:
I/Y=7%
N=4
PMT=0
FV=54364.740666246
CPT PV=31640.77
Alternatively
Using excel:
=PV(7%,8,0,PV(7%,4,15000,0,1))
=31640.77
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