Sav omeworKCnapter 4 Graded fomeworK ore 0 of 1 pt roblem 4L

Sav omeworK.Cnapter 4 Graded fomeworK ore: 0 of 1 pt roblem 4.L02.24 (similar to) 5 of 11 (0 complete) HW Score: 0%, 0 of 1 1 Question Help Starting one month from now, you need to withdraw $220 per month from your bank account to help cover the costs of your university education. You will continue the monthly withdrawals for the next four years. If the account pays 0.5% interest per month, how much money must you have in your bank account today to support your future needs? How much money must you have in your bank account today to support your future needs? (Round to the nearest cent.)

Solution

It’s a case of present value of annuity, where A = $220, n = 48, r = 0.5%

PVA = A x (1-(1+r)^-n)/r

PVA = 220 x (1-(1+.005)^-48)/.005

PVA = 220 x 42.58032

PVA = 9367.67

So having $9367.67 in starting of month will cover up education expenses withdrawal of $220 per month upto 4 years.

Its also a case of present value of annuity where A = $11538.46, n = 13, r = 7%

PVA = A x (1-(1+r)^-n)/r

PVA = 11538.46 x (1-(1+.07)^-13)/.07

PVA = 11538.46 x 8.357651

PVA = 96434.42

And $90000 received immediately, so total Present Value is $90000+$96434.42 = $186434.42