Question

you invest 2500 in your child's college fund at the end of each year for the next 12 years. at that time your kid will withdraw equal amounts at the end of the next four years. what is the annual withdrawal amount if the appropriate interest rate is 8%?

Answer 1

Step-1:Calculation of future value of investments at the end of year 12
Future value of investment		=	Annual investment	*	Future value of annuity of 1
		=	2,500.00	*	18.97713
		=	47,442.82
Working:
Future value of annuity of 1		=	(((1+i)^n)-1)/i			Where,
		=	(((1+0.08)^12)-1)/0.08			i	8%
		=	18.977126			n	12
Dtep-2:Calculation of annual withdrawl
Annual withdrawl		=	Present value	/	Present value of annuity of 1
		=	47,442.82	/	3.312127
		=	14,323.97
Working:
Present value of annuity of 1		=	(1-(1+i)^-n)/i		Where,
		=	(1-(1+0.08)^-4)/0.08		i	8%
		=	3.3121268		n	4