contestada

Aurelia is planning for her son’s college education to begin five years from today. She estimates the yearly tuition, books, and living expenses to be $5,000 per year for a four-year degree. How much must thelma deposit today, at an interest rate of 8 percent, for her son to be able to withdraw $5,000 per year for four years of college?.

Respuesta :

ayokenny2001

Thelma must deposit $11,270 today, at an interest rate of 8 percent, for her son to be able to withdraw $5,000 per year for four years of college.

What is present value?

Present value refers to the value of the investment today rather than nearest future.

We can assume the amount to be invested is y

Rate of interest = 8%

Therefore, the amount accumulated after 5 year is

=  y * 1.08^5

Since the son withdraws 5,000 per year for 4 years

The present value of those withdrawals from now

= 5,000/1.08 + (5,000/1.08)^2 + (5,000/1.08)^3 + (5,000/1.08)^4

=  16560.63

Now, the amount accumulated after 5 years

= Value of 4 withdrawals at year 5

= 1.08^5y = 16560.63

y = $11,270

Hence, Thelma must deposit $11,270 today, at an interest rate of 8 percent, for her son to be able to withdraw $5,000 per year for four years of college.

Learn more about present value here : https://brainly.com/question/20813161