Your grandmother just died and left you $40,000 in a trust fund that pays 6.5% interest. You must spend the money on your college education, and you must withdraw the money in 4 equal installments, beginning immediately. How much could you withdraw today and at the beginning of each of the next 3 years and end up with zero in the account

In finance and economics, interest is the payment of an amount above repayment of the principal sum by a borrower or deposit-taking financial institution to a lender or depositor at a specific rate by a borrower or depositor. It differs from a fee that the borrower may pay to the lender or a third party.

When the effects of compounding over time are considered, an effective annual interest rate is the real return on a savings account or any interest-paying investment. It also reflects the actual percentage rate of interest owed on a loan, credit card, or other debt.

Simple (regular) interest, accrued interest, and compounding interest are the three types of interest.

Given that,

Your grandmother just died and left you $47,500 in a trust fund that pays 6.5% interest.

You must spend the money on your college education, and you must withdraw the money in 4 equal installment

calculation:

47,500 = X ( 1 - (1.065)^-4 ) ÷ ( .065 ÷ 1.065 )

Or

N = 4

I / Y = 6.5

PV = -47,500

FV = 0

The excel formula is

=-PMT(RATE, NPER, PV, FV,TYPE)

Learn more about the interest rate here:

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