Juanita Domingo's parents want to establish a college trust for her. They want to make 16...

Juanita Domingo's parents want to establish a college trust for her. They want to make 16 quarterly withdrawals of $2000, with the first withdrawal 3 months from now. If money is worth 6.8%, compounded quarterly, how much must be deposited now to provide for this trust?

It is an ordinary annuity.

Expert Solution

Present Value Of An Annuity

= C*[1-(1+i)^-n]/i]

Where,

C= Cash Flow per period =$2000

i = interest rate per period =6.8%/4 =0.017%

n=number of period =16

= $2000[ 1-(1+0.017)^-16 /0.017]

= $2000[ 1-(1.017)^-16 /0.017]

= $2000[ (0.2364) ] /0.017

= $27,812.01

jeff jeffy answered 3 years ago

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