How much money does Jessica have in her Education Savings plan if, starting today, she can...
How much money does Jessica have in her Education Savings plan if, starting today, she can withdraw $350 per month for four years and her plan earns 7.2% compounded monthly?
Select one:
a. $16,800
b. $10,782
c. $14,647
d. $11,962
e. $13,494
Homework Answers
Solution
Answer-$14647
This is an annuity due as the first payment is made at the beginning of period
Present value of annuity due=Annuity payment*((1-(1/(1+r)^n))/r)*(1+r)
Where n=number of periods=12*4=48
r=rate of intrest per period=7.2/12=.6% per month
Annuity payment=350
Present value of annuity due=350*((1-(1/(1+.006)^48))/.006)*(1+.006)
=14646.94426
Thus correct answer is 14647
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