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Your parents want to place money in an account so that you can withdraw $200 a week for the next four years while you finish college and graduate school. If they place the money in an account that earns 4% interest, compounded weekly, how much do they need to place in the account so that the funds will be depleted in four years? (Assume that you will make the first withdrawal one week from today.)

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jepessoa

Answer:

The answer is: $38,429

Explanation:

You need to withdraw 208 payments (52 weeks x 4 years)

Each payment is $200

Discount interest is 0.0769% (4% yearly interest / 52 weeks)

So the present value of the cash flow is: PV = $38,429

The best way to calculate the PV is to use an excel spreadsheet and the NPV formula:

=PV(0.0769%,L1:L208) where L1 to L208 all equal 200