Question

Beginning three months from now, you want to be able to withdraw $3,200 each quarter from your bank account to cover college expenses over the next five years. If the account pays .54 percent interest per quarter, how much do you need to have in your bank account today to meet your expense needs over the next five years?\

Answer 1

The answer is: You need to have $65,510.55 in your bank today

Step-by-step explanation:

You need to withdraw 20 payments (5 years x 4 quarters per year)

Each payment is $3,200

Discount interest is 0.54%

So the present value of the cash flow is: PV = $60,510.55

The best way to calculate the PV is to use an excel spreadsheet and the NPV formula:

• =PV(0.54%,L1:L20) where L1 to L20 all equal 3,200