Hello, I need help with this problem: Your parents start saving for your sister\
ID: 2671964 • Letter: H
Question
Hello, I need help with this problem:
Your parents start saving for your sister's college education. She will begin college when she turns age 18 and will need $4,000 at that time and at the end of each of the following 3 years. They will make a deposit at the end of this year in an account which pays 6 percent compounded annually, and an identical deposit at the end of each year with the last deposit occurring when she turns age 18. If an annual deposit of $1,484 will allow them to reach their goal, how old is your sister now?
FV is 16,000, pmt is 1484, i is 6%, solving for n, but I keep getting an error...what is PV? Thank you!
Explanation / Answer
As a general rule for using a financial calculator, if you are *receiving* money each period, the PMT is a positive number. If you are *spending* money each period, the PMT is a negative number. Because the parents will be spending $1,484 each year, the $1,484 needs to be entered in your financial calculator as a negative number. This gives you an answer of 9. Going backward from 18, 18 - 9th payment 17 - 8th payment 16 - 7th 15 - 6th 14 - 5th 13 - 4th 12 - 3rd 11 - 2nd 10 - 1st Therefore, the daughter is 10.
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