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you invest 2500 in your child's college fund at the end of each year for the...

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Finance

you invest 2500 in your child's college fund at the end of eachyear for the next 12 years. at that time your kid will withdrawequal amounts at the end of the next four years. what is the annualwithdrawal amount if the appropriate interest rate is 8%?

Answer & Explanation Solved by verified expert
3.9 Ratings (407 Votes)

Step-1:Calculation of future value of investments at the end of year 12
Future value of investment = Annual investment * Future value of annuity of 1
=     2,500.00 * 18.97713
= 47,442.82
Working:
Future value of annuity of 1 = (((1+i)^n)-1)/i Where,
= (((1+0.08)^12)-1)/0.08 i 8%
= 18.977126 n 12
Dtep-2:Calculation of annual withdrawl
Annual withdrawl = Present value / Present value of annuity of 1
= 47,442.82 / 3.312127
= 14,323.97
Working:
Present value of annuity of 1 = (1-(1+i)^-n)/i Where,
= (1-(1+0.08)^-4)/0.08 i 8%
= 3.3121268 n 4

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Transcribed Image Text

you invest 2500 in your child's college fund at the end of eachyear for the next 12 years. at that time your kid will withdrawequal amounts at the end of the next four years. what is the annualwithdrawal amount if the appropriate interest rate is 8%?

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