Asked by Branevi Pakeerathan on May 26, 2024
Verified
You estimate that it will take five years to complete your university education. Your parents want to invest enough money today at 12 per cent to enable you to withdraw $5000 at the end of each year for the next five years with nothing left at the end of the five-year period. How much money do they need today?
A) $8810
B) $18 025
C) $25 000
D) $31 765
Withdraw
To remove something from consideration or usage, or to take money out of a bank account.
Invest Enough Money
The process of allocating adequate financial resources to opportunities, projects, or assets to achieve desired outcomes or returns.
- Estimate the eventual and current financial positions of investments across assorted circumstances.
Verified Answer
BT
Bai Tina MooreJun 01, 2024
Final Answer :
B
Explanation :
We can use the formula for present value of an annuity:
PV = PMT x (1 - (1+i)^-n) / i
where PV is the present value, PMT is the annual payment, i is the interest rate, and n is the number of periods.
Plugging in the given values:
PV = $5000 x (1 - (1+0.12)^-5) / 0.12
PV = $18 025.03
Therefore, the parents need to invest $18 025 today to meet the requirement.
PV = PMT x (1 - (1+i)^-n) / i
where PV is the present value, PMT is the annual payment, i is the interest rate, and n is the number of periods.
Plugging in the given values:
PV = $5000 x (1 - (1+0.12)^-5) / 0.12
PV = $18 025.03
Therefore, the parents need to invest $18 025 today to meet the requirement.
Learning Objectives
- Estimate the eventual and current financial positions of investments across assorted circumstances.