Suppose you wish to plan for your newborn’s college tuition payment. You intend to make equal quarterly deposits into an account offering 4% annual interest compounded quarterly on the child’s 3^rd through 13^th birthdays. You expect that tuition payments will be $50,000 semiannually by the time the child is ready to enter college. Therefore, your goal is to make eight semiannual withdrawals of $50,000 each starting on the child’s 18^th birthday, each withdrawal to be used for semiannual tuition. Assume the account offers 4 percent per year compounded quarterly from the child’s 3^rd to 13^th birthdays and 4 percent per year compounded semiannually thereafter. How much must each of the quarterly deposits be such that there will be enough money accumulated in the account to exactly meet the goal? [Suggestion: Draw the cash flow diagram to aid you in solving this problem.

Answer rating: 100% (QA)

SOLUTION Let P represent the amount of the quarterly deposits r represent the annual interest rate n ... View the full answer