Beginning three months from now, you want to be able to withdraw $1,500 each quarter from your bank account to cover college expenses over the next 4 years. The account pays 1.25 percent interest per quarter. How much do you need to have in your account today to meet your expense needs over the next 4 years?

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abiolataiwo2015 abiolataiwo2015 · Answer 1 · 2021-02-12T08:28:02+01:00

Answer:

$21,630.44

Explanation:

Calculation for How much do you need to have in your account today to meet your expense needs over the next 4 years

Rate Per quarter =1.25%

PMT =1,500

Number of Periods =4*4 =16

Based on the information given we are going to find the Present value (PV) by using annuity due formula

PV =PMT*((1-(1+r)^-n)/r)

Let plug in the formula

PV=$1,500*((1-(1+0.0125)^-16)/0.0125)

PV=$1,,500*((1-(1.0125)^-16)/0.0125)

PV=$1,500*((1-0.8197463466))/0.0125)

PV=$1,500*(0.1802536534/0.0125)

PV=$1,500*14.420292272

PV=$21,630.44

Therefore the amount you will need to have in your account today to meet your expense needs over the next 4 years will be $21,630.44