On the day his son was born, a father decided to establish a fund for his son's college education. The father wants the son to be able to withdraw $4000 from the fund on his 18th birthday, again on his 19th birthday, again on his 20th birthday, and again on his 21st birthday. If the fund earns interest at 9% per year, compounded annually, how much should the father deposit at the end of each year, up through the 17th year?

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Business

Tommy Blanchard

2 October, 10:51

On the day his son was born, a father decided to establish a fund for his son's college education. The father wants the son to be able to withdraw $4000 from the fund on his 18th birthday, again on his 19th birthday, again on his 20th birthday, and again on his 21st birthday. If the fund earns interest at 9% per year, compounded annually, how much should the father deposit at the end of each year, up through the 17th year?

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Landen Chan · Answer 1

The amount of deposit is 369.77 dollars

Explanation:

We can calculate the amount of deposit using present value and the number of payment periods, which is 17. It tells us about the value of our future income as measured in today's dollars. Future value for all four years is 1600 dollars. Formula for present value is future value / (1+interest rate) ^number of periods. In this case it will be 1600/1.09^17 or 1600/4.327 equals 369.77.