Beginning three months from now, you want to be able to withdraw $1,700 each qua
ID: 2776919 • Letter: B
Question
Beginning three months from now, you want to be able to withdraw $1,700 each quarter from your bank account to cover college expenses over the next 4 years. The account pays 1.25 percent interest per quarter. How much do you need to have in your account today to meet your expense needs over the next 4 years? Beginning three months from now, you want to be able to withdraw $1,700 each quarter from your bank account to cover college expenses over the next 4 years. The account pays 1.25 percent interest per quarter. How much do you need to have in your account today to meet your expense needs over the next 4 years?Explanation / Answer
Total withdrawal to be made (quarterly instalments for 4 years = 16 instalments) is 16 X 1,700 $ = $ 27,200
Interest paid per quarter = 1.25% = 1.25 X 16 = 20% for the next four years on $ 27,200 = $ 5,440
Hence, total amount to be maintained in the account = $ 27,200 + $ 5,440 = $ 32,640.
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