contestada

Seth was born today. Harold and Maude Clark anticipate that Seth will begin college at age 18. College education expenses are $25,000 per year in today’s dollars and are expected to increase at an annual rate of six percent. The Clarks can earn an after-tax annual return of 12 percent. How much should the Clarks deposit at the end of each year to pay for Seth’s education. The last deposit will be made when Seth reaches his 18th birthday and he will attend college for four years.A. $4,722.99B. $5,292.50C. $3,335.67D. $2,435.99

Respuesta :

facundobuzzetti

Answer:

Annual deposit= $5,599.42

Explanation:

First, we need to calculate the total future value required when Seth is 18.

FV= PV*(1+i)^n

FV18= 25,000*1.06^18= $71,358.48

FV19= 71,358.48*1.06= $75,639.99

FV20= 75,639.99*1.06= $80,178.39

FV21= 80,178.39*1.06= 84,989.09

Total FV= $312,165.95

Now, we can calculate the annual deposit:

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

Isolating A:

A= (FV*i)/{[(1+i)^n]-1}

A= (312,165.95*0.12) / [(1.12^18) - 1]

A= $5,599.42

Otras preguntas