In: Finance
Lionel wants to set up a fund for his son's education such that he could withdraw $1,295.00 at the beginning of every 3 months for the next 6 years. If the fund can earn 3.30% compounded semi-annually, what amount could he deposit today to provide the payment?
Particulars | Amount |
Given APR | 3.30% |
Given compounding frequency per year | 2 |
Effective annual rate | 3.327% |
(1+ 0.033/2)^2 -1 | |
Required compounding frequency per year | 4 |
Req period effective rate | 0.8216% |
(1+ 0.03327225)^1/4 -1 | |
Required APR | 3.28650% |
0.00821625*4 |
Present value of annuity due= | P* [ [1- (1+r)-(n-1) ]/r ] + P | |||
P= | Periodic payment | 1,295.00 | ||
r= | Rate of interest per period: | |||
Annual rate of interest | 3.28650% | |||
Frequency of payment | once in every 3 months | |||
Payments per year | 12/ 3= | 4 | ||
Interest rate per period | 0.032865/4= | 0.822% | ||
n= | number of payments: | |||
Number of years | 6 | |||
Payments per year | 4 | |||
number of payments | 24 | |||
Present value of annuity= | 1295* [ [1- (1+0.008216)^-(24-1)]/0.008216 ] +1295 | |||
Present value of annuity= | 28,334.14 |
Answer is:
28,334.14
please rate.