Question

Juanita Domingo's parents want to establish a college trust for her. They want to make 16 quarterly withdrawals of $2000, with the first withdrawal 3 months from now. If money is worth 7.5%, compounded quarterly, how much must be deposited now to provide for this trust

Answer 1

Initial investment= 26,921.47

Step-by-step explanation:

Giving the following information:

Withdrawls= 16 of $2,000

Interest rate= 0.075/4= 0.01875

To calculate the initial investment, first, we need to calculate the future value of the investment:

FV= {A*[(1+i)^n-1]}/i

A= quarterly payment

FV= {2,000*[(1.01875^16) - 1]} / 0.01875

FV= $36,918.86

Now, the present value:

PV= FV/(1+i)^n

PV= 36,918.86/1.01875^17

PV= $26,921.47

Initial investment= 26,921.47