Judge Drago has decided to set up an educational fund for his favorite granddaughter, Emma, who will start college in on...
Judge Drago has decided to set up an educational fund for his favorite granddaughter, Emma, who will start college in one year. The judge plans to deposit an amount in a savings account that pays 7% annual interest. He wants to deposit an amount that is sufficient to permit Emma to withdraw $21,100 for tuition starting in one year and continuing each year for a total of four years. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)
How much should he deposit today to provide Emma with a fund to pay for her college tuition? (Round your answer to nearest whole dollar.)
Homework Answers
Amount to be deposited today = ?
Annual withdrawal = $21,100
Interest rate (i) = 7%
Time period (n) = 4 years
Amount to be deposited today = Annual withdrawal x PVAF (i%, n)
= 21,100 x PVAF (7%, 4)
= 21,100 x 3.38721
= $71,470
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