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Inessa [10]
2 years ago
15

The parents of a young child decide to make annual deposits into a college savings account. The first deposit will be made on he

r 5th birthday and the last deposit will be made on her 15th birthday. Then starting on her 18th birthday, withdrawals for college expenses will be made as follows: $20,000 on her 18th birthday, $24,000 on her 19th birthday, $28,000 on her 20th birthday, and $32,000 on her 21st birthday. If the yearly interest rate is 10%, during this entire period of time, what is the amount of the equal, annual deposits made on birthdays 5 through 15
Business
1 answer:
Gnom [1K]2 years ago
5 0

Answer:

The amount of the equal, annual deposits made on birthdays 5 through 15 is $3,970.58

Explanation:

First, let's calculate the present value of the college expenses on her 17th birthday (a year before college) using NPV formula

NPV(9%, 20000...32000) = $82,839.69

Now, its value on 15th birthday should be equal to 82,839.69 / (1 + 9%)² = $69,724.51

Using the PMT formula, we can calculate the annual amount they have to invest for 11 years to get to this sum at 9% annual rate

PMT(rate = 9%, nper = 11, pv = 0, fv = 69,724.51, 0) = $3,970.58

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Explanation:

Computation of the given data are as follows:

Common stock after issuing stock dividend = $100,000 + ( 10,000 ×10% × $10)

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Additional paid-in capital after issuing stock dividend = 120,000 +  ( 10,000 ×10% × $10)

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Retained earnings after issuing stock dividend = 150,000 +  ( 10,000 ×10% × $20)

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