Question

3. Beginning three months from now, you want to be able to withdraw $1,500 each quarter from your bank account to cover college expenses over the next three years. If the account pays .37 percent interest per quarter, how much do you need to have in your bank account today to meet your expense needs over the next three years

Answer 1

The total amount needed = $17,574.47

Step-by-step explanation:

Total amount needed = Annuity payment * Present value annuity

When Present Value annuity = Annuity payment * [1 – [1/ (1 + r)^12] / r}

R = Rate of Interest = 0.37% = 0.0037

N= No. of Periods = 12(Quarters)

= Annuity payment * {[1 – [1/ (1 + 0.0037)12] / 0.0037}

= $1,500 * {[1 – (1/ 1.0037)12] / 0.0037}

= $1,500 * {[1 – (0.95664963507)] / 0.0037}

= $1,500 * {0.04335036493 / 0.0037}

= $1,500 * 11.716315

= $17574.4725

Hence, the total amount needed = $17,574.47