Answer to Question #264180 in Finance for Aiman

Question #264180

John Anderson wants to save for his daughter’s college tuition. He will have to pay Rs. 50,000 at the end of each year for the four years that her daughter attends college. He has 8 years until his daughter starts college to save up for her tuition. Using a 7% interest rate compounded annually, the amount Anderson would have to save each year for 8 years is closest to:


1
Expert's answer
2021-11-11T17:22:51-0500

Solution:

First, calculate the present value of an annuity for the school fees required:

PV = PMT "\\times" [1 – (1 + r)-n "\\div" r]

PV = 50,000 "\\times" [1 – (1+0.07)-4"\\div" 0.07] = 50,000 "\\times" 3.3872 = 169,360

PV = 169,360

 

Now calculate the periodic payments of FV:

P = FV"\\div" [(1+r)n – 1"\\div" r] = 169,360"\\div" (1+0.07)8 – 1"\\div" 0.07] = 169,360"\\div" 10.2598 = 16,507

The amount Anderson would have to save each year for 8 years is closest to Rs. 16,500


Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!

Comments

No comments. Be the first!

Leave a comment

LATEST TUTORIALS
New on Blog
APPROVED BY CLIENTS