Nancy just had a new baby boy and plans to send him to college 19 years...

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Nancy just had a new baby boy and plans to send him to college19 years from now. She wants to deposit each winter in an educationaccount which pays 10% (compounded annually) so that her boy willhave enough money set aside that he can take out $20,000 at thebeginning of each year to pay tuition, room and board, etc., foreach of his four-year education. How much will Nancy need todeposit at the end of each year in order to meet the goal (Note:There will be 19 total deposits and the first deposit will be madein one year. Also, the last deposit will be made the day before thefirst withdrawal.)
Hint: 0-19: ordinary annuity, you deposit PMT every year for 19times;
19-23: annuity due, you withdraw20,000 every year for 4 times.
Can you get the PVA of those four20,000 @ point 19? The number you get is the future value of those19 pmts. Then use that value as FV of the ordinary annuity (the 19pmts), can you get the PMT?
a. 1,363.14
b. 1,379.89
c. 1,306.64
d. 1,312.84
e. 1,321.12

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4.5 Ratings (695 Votes)

Step 1 Calculation of accumulated amount in a education fund at the end of 19 years We can use the present value of annuity due formula to calculate this amount Present Value of annuity due P P1 1rn1r Present value of annuity due See Answer

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Nancy just had a new baby boy and plans to send him to college19 years from now. She wants to deposit each winter in an educationaccount which pays 10% (compounded annually) so that her boy willhave enough money set aside that he can take out $20,000 at thebeginning of each year to pay tuition, room and board, etc., foreach of his four-year education. How much will Nancy need todeposit at the end of each year in order to meet the goal (Note:There will be 19 total deposits and the first deposit will be madein one year. Also, the last deposit will be made the day before thefirst withdrawal.)Hint: 0-19: ordinary annuity, you deposit PMT every year for 19times;19-23: annuity due, you withdraw20,000 every year for 4 times.Can you get the PVA of those four20,000 @ point 19? The number you get is the future value of those19 pmts. Then use that value as FV of the ordinary annuity (the 19pmts), can you get the PMT?a. 1,363.14b. 1,379.89c. 1,306.64d. 1,312.84e. 1,321.12