Question

Danny Metzger's parents invested $1700 when he was born. This money is to be used for Danny's college education and is to be withdrawn in four equal annual payments beginning when Danny is age 19. Find the amount that will be available each year, if money is worth 6%, compounded annually. (Round your answer to the nearest cent.)

Answer 1

Future value of $1700 = Present value * ( 1+ rate) ⁿ = 1700 * ( 1+ 6%) ¹⁹ = 5143.52

Present value of annuity due = PMT * [( 1- (1/1+r) ⁿ ) /r ] * (1+r)

5143.52 = PMT * [( 1- (1/(1+6%) ⁴ ) /6% ] * (1+6%)

PMT = 1400.35

amount that will be available each year = $1400.35