Suppose you wish to plan for your newborns college tuitionpayment You...

Suppose you wish to plan for your newbornâ€™s college tuition payment. You intend to make equal...

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Finance

Suppose you wish to plan for your newbornâ€™s college tuitionpayment. You intend to make equal quarterly deposits into anaccount offering annual rate of 6% compounded quarterly on thechildâ€™s 1st through 12th birthdays. You expect that tuitionpayments will be $40,000 every six months by the time the child isready to enter college. Therefore, your goal is to make eightsemi-annual withdrawals of $40,000 each starting on the childâ€™s18th birthday to be used for his tuition payments. How much musteach of the quarterly deposits be such that there will be enoughmoney accumulated in the account to exactly meet the goal? Assumethe account offers 6% per year compounded quarterly until thechildâ€™s 18th birthday and 6% per year compounded semi- annuallyafter that. [Suggestion: Draw the cash flow diagram to aid you insolving this problem.

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3.9 Ratings (348 Votes)

Step 1 Fund required for the Tuition fee at the end of 18 years Number of withdrawal nper 8 amount per withdrawal PMT 40000 Interest rate rate 6 annual 3 semi annual value of the fund PV 384000001 28921132 Step 2 Value of fund at end of 12 See Answer

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