Suppose you wish to plan for your newborn’s college tuitionpayment. You intend to make equal quarterly deposits into anaccount offering annual rate of 6% compounded quarterly on thechild’s 1st through 12th birthdays. You expect that tuitionpayments will be $40,000 every six months by the time the child isready to enter college. Therefore, your goal is to make eightsemi-annual withdrawals of $40,000 each starting on the child’s18th birthday to be used for his tuition payments. How much musteach of the quarterly deposits be such that there will be enoughmoney accumulated in the account to exactly meet the goal? Assumethe account offers 6% per year compounded quarterly until thechild’s 18th birthday and 6% per year compounded semi- annuallyafter that. [Suggestion: Draw the cash flow diagram to aid you insolving this problem.
