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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Business

Drake Pennington

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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Answers (1)

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Makhi Hill · Answer 1

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Cash Invested in the saving account will earn a return of 8% each year and this amount could be withdrawn by the me to pay for the education of child.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