John is planning to go to graduate school in a program that will take three years. John wants to have available $10,000 available each year for his school and living expenses. If he earns 6% on his investments, how much must be deposited at the start of his studies for him to withdraw $10,000 a year for three years?
A) $10,000
B) $18,390
C) $26,730
D) $29,100
E) $30,000

Question

Quizplus · Accepted Answer

To find the present value of the withdrawals, we use the formula for the present value of an annuity: PV = PMT × [(1 - (1 + r)^-n) / r]. Here, PMT = $10,000, r = 0.06, and n = 3. Plugging in these values, we get PV = $10,000 × [(1 - (1 + 0.06)^-3) / 0.06] = $26,730.

John Is Planning to Go to Graduate School in a Program