Use the following information to answer the next two questions. Your little brot

Question

Use the following information to answer the next two questions.

Your little brother is about to go to college. Your parents estimate that his tuition and fees will cost $11,000/year for the next five years. They decide to make a one time investment into an account that earns 7% compounded annually to cover these costs. How much must they invest to fully cover your brother's tuition and fees? Round your final answer to two decimals.

Suppose that your parents decide to invest $55,000 today in the account mentioned in the previous question. How much money would be left in the account after 5years has passed and your brothers tuition and fees were fully paid?

8,258.13

9,897.83

13,882.22

Cannot be determined

Explanation / Answer

Let the amount to be invested be P. P / PVIFA7%, 5 yrs = $ 11,000

Therefore P = $ 11,000 x 4.1002 = $ 45,102.20

If $ 55,000 is invested today at 7% for 5 years compounded annually, the amount that remains after 5 years, = ( 55,000 x 1.07 - 11,000 x (1.07)-11,000 x (1.07)-11,000 x (1.07)-11,000 x (1.07)-11,000 = $ 13,882.22

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects