You have been accepted to study international economy at the European Central Ba

Question

You have been accepted to study international economy at the European Central Bank (ECB) in Frankfurt. You will need $10,500 every 6 months (beginning today) for the next three years to cover tuition and living expenses. Mom and Dad have agreed to pay for your education, and want to make one deposit today in a bank account earning 6% interest, compounded semiannually. How much must they deposit now so that you can withdraw $10,500 at the beginning of each semester over the next 3 years? You have been accepted to study international economy at the European Central Bank (ECB) in Frankfurt. You will need $10,500 every 6 months (beginning today) for the next three years to cover tuition and living expenses. Mom and Dad have agreed to pay for your education, and want to make one deposit today in a bank account earning 6% interest, compounded semiannually. How much must they deposit now so that you can withdraw $10,500 at the beginning of each semester over the next 3 years?

Explanation / Answer

Effective interest rate =+(1+(0.03/4))^4-1

Cash flow PV factor 3.03% Presnt value of Cash flow 1 10500 0.97055 10191 2 10500 0.94198 9891 3 10500 0.91424 9600 4 10500 0.88732 9317 5 10500 0.86119 9043 6 10500 0.83583 8776 Amount To be deposited 56817

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