Question

Your grandparents put $11,200 into an account so that you would have spending money in college. You put the money into an account that will earn an APR of 4.39 percent compounded monthly. If you expect that you will be in college for 4 years, how much can you withdraw each month

Answer 1

The amount you can withdraw each month is $254.84.

Step-by-step explanation:

This can be calculated using the formula for calculating the present value of an ordinary annuity as follows:

PV = W * ((1 - (1 / (1 + r))^n) / r) …………………………………. (1)

Where;

PV = Present value or the amount your grandparents put into an account = $11,200

W = Monthly withdrawal = ?

r = Monthly interest rate = annual percentage rate (APR) / 12 = 4.39% / 12 = 0.0439 / 12 = 0.00365833333333333

n = number of months you will be in college = number of years you will be in college * number of months in a year = 4 * 12 = 48

Substitute the values into equation (1) and solve for W, we have:

$11,200 = W * ((1 - (1 / (1 + 0.00365833333333333))^48) / 0.00365833333333333)

$11,200 = W * 43.9483302382462

W = $11,200 / 43.9483302382462

W = $254.844721956084

Rounding to 2 decimal places, we have:

W = $254.84

Therefore, the amount you can withdraw each month is $254.84.