You are saving for your child\'s education since you did not participate in the
ID: 2384316 • Letter: Y
Question
You are saving for your child's education since you did not participate in the Texas Tomorrow Fund. Your child is turned one today. Starting next quarter, you will deposit $500 every quarter until you child turns 17. Your last payment will be on his 17th year. You can to withdraw $X very year starting his 18th birthday for 4 years, first payment on his 18th birthday. Assuming you have investing your money in an account is provides 10% return and the interest is compounded daily (365 days). What is $X? (Show using a financial calculator, step by step)
Explanation / Answer
Annual Interest Rate ( compounded Daily) = 10%
Annual Interest Rate (Compounded Annually) =(1+10%/365)^365 -1 = 10.515578%
Quaterly Interest Rate =(1+10%/365)^(365/4) -1 = 2.531161%
Amount available in Texas Tomorrow Fund on your Child 17th Birthday = fv(rate,nper,pmt,pv)
rate (quarterly) = 2.531161%
nper (no of quarter) = (17-1)*4 = 64
pmt (quartrely Payment) = 500
PV = 0
Amount available in Texas Tomorrow Fund on your Child 17th Birthday = fv(2.531161%,64,500,0)
Amount available in Texas Tomorrow Fund on your Child 17th Birthday = $ 78065.90
Annual Withdrawl ( X) = pmt(rate,nper,pv,fv)
rate ( Compounded annually) = 10.515578%
nper ( no of year) = 4
pv ( Amount on 17 th birthday) = 78065.90
fv = 0
Annual Withdrawl ( X) = pmt(10.515578%,4,-78065.90,0)
Annual Withdrawl ( X) = $ 24,902.925
Answer
X = $ 24,902.925
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