You are planning for your son's college education to begin five years from today. You estimate the yearly tuition, books, and living expenses to be $5,000 per year for a four-year degree, assuming the expenses incur only at the end of the year. How much must you deposit today, at an interest rate of 8 percent, for your son to be able to withdraw $5,000 per year for four years of college?

A) $11,270

B) $13,620

C) $20,000

D) $39,520

Question

Business

Dayton Jarvis

7 October, 15:54

You are planning for your son's college education to begin five years from today. You estimate the yearly tuition, books, and living expenses to be $5,000 per year for a four-year degree, assuming the expenses incur only at the end of the year. How much must you deposit today, at an interest rate of 8 percent, for your son to be able to withdraw $5,000 per year for four years of college?

A) $11,270

B) $13,620

C) $20,000

D) $39,520

+1

Answers (1)

Know the Answer?

Dominic Merritt · Answer 1

The correct answer is B.

Explanation:

Giving the following information:

Future value = 5,000*4 = $20,000

i = 8%

number of years = 5 years

To calculate the present value of the investment, we need to use the following formula:

PV = FV / (1+i) ^n

PV = 20,000 / (1.08^5)

PV = $13,611.664