Question

Imagine that you are a parent, and your child is going to college in 4 years. Tuition fees amount to $16,000 a year for each of the 4 years. You plan on depositing a lump sum of money today in a bank account paying 5% interest a year, so that you can make these annual tuition fee payments. The first tuition fee payment you make will be 4 years from now. Calculate how much is the lump sum of money you need to deposit now in order to fund these annual tuition fee payments._________(round your answer to the nearest integer, e.g. enter 12345 if your answer is 12,345.2; enter 12346 if your answer is 12,345.7)

Answer 1

lump sum money= $52653

Step-by-step explanation:

Giving the following information:

Your child is going to college in 4 years.

Tuition fees amount to $16,000 a year for each of the 4 years.

You plan on depositing a lump sum of money today in a bank account paying 5% interest a year.

The first tuition fee payment you make will be 4 years from now.

FV= 16000*4= $64000

n= 4 years

i= 0.05

We need to find the annual payments:

PV= FV/(1+i)^n

PV= 64000/1.05^4= $52653