Question

You are planning for your son's college education to begin five years from today. You estimate the yearly tuition, books, and living expenses to be $5,000 per year for a four-year degree, assuming the expenses incur only at the end of the year. How much must you deposit today, at an interest rate of 8 percent, for your son to be able to withdraw $5,000 per year for four years of college?

A) $11,270
B) $13,620
C) $20,000
D) $39,520

Answer 1

Answer:

The correct answer is B.

Explanation:

Giving the following information:

Future value= 5,000*4= $20,000

i= 8%

number of years= 5 years

To calculate the present value of the investment, we need to use the following formula:

PV= FV/ (1+i)^n

PV= 20,000/ (1.08^5)

PV= $13,611.664