Question

You are starting the four-year college education today, and you are worried if you have enough money in your account for tuitions and fees. You are going to pay $15,000 a year at the beginning of each school year starting today. If the interest rate on your account is 7%, compounded annually, how much should you have in your account today? Round to the nearest cent. Do not include any unit (If your answer is $111.11, then type 111.11 without $ sign.)

Answer 1

Answer:

The student should have in his account now the sum of $ 54,365  

Explanation:

In arriving at the amount above,I used the present value formula,which is:

PV=FV/(1+r)^n

FV=future value=$15000 at the beginning of each of the four years

r[=rate=7%

n=number for each payment

The table below showed the detailed calculation

Year Cash flows FV/(1+r)^n

0         15000        15000

1          15000        14,019  

2         15000        13,102  

3         15000        12,244  

       Total                      54,365  

Please note that the beginning of year of year 1 is the same as year 0 and so on.