mia yAhnuity REQUIRED LUMP SUM PAYMENT Starting next year, you will need $25,000

Question

mia yAhnuity REQUIRED LUMP SUM PAYMENT Starting next year, you will need $25,000 annually for 4 years to complete y education. (One year from today you will withdraw the first $25,000.) Your uncle deposits an amount today in a bank paying 8% annual interest, which will provide the needed $25,000 payments. a. How large must the deposit be? Round your answer to the nearest cent our How much will be in the account immediately after you make the first withdrawal? Round your answer to the nearest cent.

Explanation / Answer

Req 1: Annual cashflows required for 4 years 25,000 Present Annuity factor for 4 yeasr at 8% 3.312 Present value of cash requirement 82800 Therefore, The deposit to be made today is $ 82,800 Req 2: Amount after first withdrawal after Year1: Amount deposited in Year-0 82800 Add; Interest @8% 6624 Amount in accounts at end of Year-1 before wthdrawal 89424 Less: Withdrawal made at Year-1 end 25000 Amount in Accounts after first withdrawal 64424

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