Cost of college now: 60,000, increasing at 5% a year for eight years=88647 Value

Question

Cost of college now: 60,000, increasing at 5% a year for eight years=88647 Value of mutual bond now:50,000 increasing at 8% a year for eight years=92547 Sally decides she wants to take some money out of her mutual fund right now, so she is left with exactly the right amount of money for the cost of college in eight years ($88647). This means that some amount of money that she draws out right now will not grow to the extra $3900 (the difference between 92547-88647). How much can she draw out right now so that her mutual fund with grow to the exact cost of college in eight years?

Explanation / Answer

here FV = $88647 rate = 8% time = 8 years so PV = FV/(1+r)^t = 88647/(1+.08)^8 = $47893.21 Amount she can draw = 50000 - 47893.21 = $2106.78

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