You estimate that it will take five years to complete your college education. Your parents want to invest enough money today at an interest rate of 8% compounded annually to allow you to withdraw $10,000 at the end of each year for the next five years, with nothing left at the end. The amount of money to invest today is:
A) $14,690.
B) $34,050.
C) $39,930.
D) $50,000.
E) None of the answers is correct.

Question

Quizplus · Accepted Answer

The present value of an annuity formula is used to calculate the amount needed today: PV = PMT × [(1 - (1 + r)^-n) / r]. Here, PMT = $10,000, r = 0.08, n = 5. Plugging in these values gives PV = $39,929.98, which rounds to $39,930.

You Estimate That It Will Take Five Years to Complete