Beginning three months from now, you want to be able to withdraw $2,600 each quarter from your bank account to cover college expenses over the next four years. If the account pays .66 percent interest per quarter, how much do you need to have in your bank account today to meet your expense needs over the next four years?
Beginning three months from now, you want to be able to withdraw $2,600 each quarter from your bank account to cover college expenses over the next four years. If the account pays .66 percent interest per quarter, how much do you need to have in your bank account today to meet your expense needs over the next four years?
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 25P
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Question
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Beginning three months from now, you want to be able to withdraw $2,600 each quarter from your bank account to cover college expenses over the next four years. |
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If the account pays .66 percent interest per quarter, how much do you need to have in your bank account today to meet your expense needs over the next four years? |
Expert Solution
Step 1
Present Value of Annuity:
The present value of an annuity is the present value of the projected future payments from an annuity at a given rate of return, or discount rate.
As the discount rate rises, the annuity's present value falls.
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