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10 April, 14:45

You have saved $120,000 for your child to attend college. If it is in an account earning an annual rate of 8%, how much can you take out in equal payments at the end of each of the next four years to pay for their education?

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  1. 10 April, 15:34
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    I will take $36,230.5 to pay for the education of child.

    Explanation:

    Cash Invested in the saving account will earn a return of 8% each year and this amount could be withdrawn by the me to pay for the education of child.

    We will use following formula to calculate the annual payments

    P = r (PV) / [ 1 - (1 + r) ^-n ]

    where

    PV = amount of investment = $120,000

    r = rate of return = 8%

    n = number of period = 4 years

    P = 8% (120,000) / [ 1 - (1 + 0.08) ^-4 ]

    P = 36,230.5
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