Question

Beginning three months from now, you want to be able to withdraw $1,500 each quarter from your bank account to cover college expenses over the next three years. If the account pays .37 percent interest per quarter, how much do you need to have in your bank account today to meet your expense needs over the next three years?

Answer 1

Answer

Total amount needed = Annuity payment * Present value annuity

Present Value annuity = Annuity payment * [1 – [1/ (1 + r)¹²] / r}

R = Rate of Interest = 0.37% or 0.0037

N= No. of Periods = 12(Quarters)

= Annuity payment * {[1 – [1/ (1 + 0.0037)¹²] / 0.0037}

= $1,500 * {[1 – (1/ 1.0037)¹²] / 0.0037}

= $1,500 * {[1 – (0.95664963507)] / 0.0037}

=$1,500 * {[0.04335036493] / 0.0037}

Total amount needed = $17,574.47